Stefano Giglio
Professor of Finance, Yale School of Management
NBER Research Associate
CEPR Research Affiliate
Working Papers
Cross-sectional uncertainty and the business cycle: evidence from 40 years of options data, with Ian Dew-Becker, September 2020
[Data]
This paper presents a new measure of cross-sectional uncertainty constructed from stock options on (large) individual firms. We find that cross-sectional uncertainty varied little between 1980 and 1995, and subsequently had just two peaks – during the dot-com boom and the financial crisis. Overall, cross-sectional uncertainty is roughly acyclical and has little or no forecasting power for economic activity. Moreover, risk premia imply that investors view periods of high cross-sectional uncertainty as typically good states (as in the late 1990s). Overall, cross-sectional uncertainty does not appear to represent a hindrance to economic growth.
Equity Term Structures without Dividend Strips Data, with Bryan Kelly and Serhiy Kozak, March 2020
We use a large cross-section of equity returns to estimate a rich affine model of equity prices, dividends, returns and their dynamics. Using the model, we price dividend strips of the aggregate market index, as well as any other well-diversified equity portfolio. We do not use any dividend strips data in the estimation of the model; however, model-implied equity yields generated by the model match closely the equity yields from the traded dividend forwards reported in the literature. Our model can therefore be used to extend the data on the term structure of discount rates in three dimensions: (i) over time, back to the 1970s; (ii) across maturities, since we are not limited by the maturities of actually traded dividend claims; and most importantly, (iii) across portfolios, since we generate a term structure for any portfolio of stocks (e.g., small or value stocks). The new term structure data generated by our model (e.g., separate term structures for value, growth, investment and other portfolios, observed over a span of 45 years that covers several recessions) represent new empirical moments that can be used to guide and evaluate asset pricing models.
Climate Change and Long-Run Discount Rates: Evidence from Real Estate, with Matteo Maggiori, Krishna Rao, Johannes Stroebel, and Andreas Weber, March 2018
Revise and Resubmit at the Journal of Political Economy
We explore what private market data can tell us about the appropriate discount rates for valuing investments in climate change abatement. We estimate the term structure of discount rates for real estate up to the very long horizons relevant for investments in climate change abatement. The housing term structure is downward sloping, reaching 2.6% at horizons beyond 100 years. We also show that real estate is exposed to both consumption risk and climate risk. We explore the implications of these new data using a tractable asset pricing model that incorporates important features of climate change. Climate change is modeled as a rare catastrophic event, the probability of which increases with economic growth. Economic activity partially mean reverts following a climate disaster, capturing the ability of the economy to adapt. As a result, short-run cash flows are more exposed to climate risk than long-run cash flows, allowing us to match the observed housing term structure. The model and data provide simple yet powerful guidance for appropriate discount rates for investments that hedge climate disaster risk. The term structure of these discount rates is upward-sloping but bounded above by the risk-free rate. For extremely far horizons at which we do not observe the risk-free rate, the estimated long-run discount rates for housing (a risky asset) provide an upper bound that becomes tighter with maturity. This suggests that the appropriate discount rates for investments in climate change abatement are low at all horizons, substantially below those conventionally used for valuing these investments and for determining the social cost of carbon.
The Collateral Rule: Evidence from the Credit Default Swap Market, with Agostino Capponi, Allen Cheng, Chuan Du, and Richard Haynes, August 2020
We explore a novel dataset of daily cleared credit default swap (CDS) positions along with the posted margins to study how collateral varies with portfolio risks and market conditions. Contrary to many theoretical models, which assume that collateral constraints follow Value-at-Risk rules, we find strong evidence that collateral requirements are set an order of magnitude larger than what standard Value-at-Risk rules imply. The panel variation in collateralization rates of CDS portfolios (over time and across participants) is well explained by measures of extreme tail risks, related to the maximal potential loss of the portfolio. We develop a model of endogenous collateral in CDS markets to interpret these empirical findings. The model predicts that the conservativeness of collateral levels can be explained through disagreement of market participants about the extreme states of the world, in which CDSs pay off and counterparties default.
Credit Default Swap Spreads and Systemic Financial Risk, April 2014
Runner-up, Ieke van den Burg Prize for Research on Systemic Risk 2015
This paper measures the joint default risk of financial institutions by exploiting information about counterparty risk in credit default swaps (CDS). A CDS contract written by a bank to insure against the default of another bank is exposed to the risk that both banks default. From CDS spreads we can then learn about the joint default risk of pairs of banks. From bond prices we can learn the individual default probabilities. Since knowing individual and pairwise probabilities is not sufficient to fully characterize multiple default risk, I derive the tightest bounds on the probability that many banks fail simultaneously.
Publications
21. Asset Pricing with Omitted Factors, with Dacheng Xiu
Journal of Political Economy, forthcoming
Best Paper Prize at the 2017 European Financial Association conference
[Online Appendix] [Code]
20. Inside the Mind of a Stock Market Crash, with Matteo Maggiori, Johannes Stroebel and Stephen Utkus
PNAS, forthcoming
19. Five Facts About Beliefs and Portfolios, with Matteo Maggiori, Johannes Stroebel, and Steven Utkus
American Economic Review, forthcoming
Yuki Arai Faculty Research Prize for Finance 2019
Best Behavioral Finance Paper, Midwest Finance Association Meetings 2020
18. Climate Finance, with Bryan Kelly and Johannes Stroebel
Annual Review of Financial Economics, forthcoming
17. Hedging macroeconomic and financial uncertainty and volatility, with Ian Dew-Becker and Bryan Kelly
Journal of Financial Economics, forthcoming
[Data] [Online Appendix]
16. Thousands of alpha tests, with Yuan Liao and Dacheng Xiu
Review of Financial Studies, forthcoming
[Online Appendix] [Code]
15. Taming the Factor Zoo: a Test of New Factors, with Guanhao Feng and Dacheng Xiu
Journal of Finance (2020), 75(3): 1327-1370
AQR Insight Award 2018, First Prize
14. Uncertainty Shocks as Second-Moment News Shocks, with David Berger and Ian Dew-Becker
Review of Economic Studies (2020), 87(1): 40-76
[Data] [Online Appendix]
(Previous Title: "Contractionary Volatility or Volatile Contractions"?)
13. Hedging Climate Change News, with Robert Engle, Bryan Kelly, Heebum Lee and Johannes Stroebel
Review of Financial Studies (2020), 33(3): 1184-1216
[Data]
12. An Intertemporal CAPM with Stochastic Volatility, with John Campbell, Christopher Polk and Bob Turley
Journal of Financial Economics (2018), 128(2): 207-233
Lead article
Fama-DFA Prize for the Best Paper Published in the Journal of Financial Economics (Asset Pricing), 2018
11. Excess Volatility: Beyond Discount Rates, with Bryan Kelly
Quarterly Journal of Economics (2018), 133(1): 71-127
Finalist, AQR Insight Award, 2016
Napa Conference Best Paper Award, 2016
10. The Price of Variance Risk, with Ian Dew-Becker, Anh Le and Marius Rodriguez
Journal of Financial Economics (2017), 123(2): 225-250
Lead article
[Data] [Online Appendix]
9. Asset Pricing in the Frequency Domain: Theory and Empirics, with Ian Dew-Becker
Review of Financial Studies (2016), 29(8): 2029-2068
[Online Appendix] [Coverage: VoxEU]
8. No-Bubble Condition: Model-Free Tests in Housing Markets, with Matteo Maggiori and Johannes Stroebel
Econometrica (2016), 84(3): 1047-1091
[Online Appendix] [Reply] [Coverage: VoxEU]
7. Systemic Risk and the Macroeconomy: An Empirical Evaluation, with Bryan Kelly and Seth Pruitt
Journal of Financial Economics (2016), 119(3): 457-471
Lead article
Fama-DFA Prize for the Best Paper Published in the Journal of Financial Economics (Asset Pricing), 2016
Q-Group Roger F. Murray Prize (3rd prize), 2015
[Online Appendix] [Data] [Coverage: MoneyAndBanking.com; VoxEU; BFI]
6. A Review of Long-Run Discounting: evidence from Housing Markets, with Matteo Maggiori
Rivista di Politica Economica (2016), 4, 7-36 (not refereed)
5. Very Long-Run Discount Rates, with Matteo Maggiori and Johannes Stroebel
Quarterly Journal of Economics (2015), 130(1): 1-53
QJE Lead Article
QJE Editor's Choice article
Jacob Gold & Associates Best Paper Prize, ASU Sonoran Winter Finance Conference, 2014
NYU Glucksman Institute Faculty Research Prize for the Best Paper in Finance, 2015
[Online Appendix] [NBER WP Version] [Data]
[Coverage: Forbes ; Economist, May 2014 ; National Review ; NBER Digest ; VoxEU; Economist, April 2015]
4. No News is News: Do Markets Underreact to Nothing?, with Kelly Shue
Review of Financial Studies, (2014), 27(12): 3389-3440
Lead Article
Winner of the UBS Global Asset Management Award for Research in Investments, FRA Meeting 2012
3. Hard Times, with John Campbell and Christopher Polk
Review of Asset Pricing Studies (2013), 3(1): 95-132
2. Intangible Capital, Relative Asset Shortages, and Bubbles, with Tiago Severo
Journal of Monetary Economics (2012), 59: 303-317
1. Forced Sales and House Prices, with John Campbell and Parag Pathak
American Economic Review (2011), 101(5): 2108–31