Asset Pricing, Macroeconomics, Portfolio Choice, and Computational Methods
"Macroeconomic Tail Risks and Asset Prices", 02/2018 [pdf]
I document that dividend growth for the aggregate U.S. stock market is more correlated with consumption growth in bad economic times than in good times. In a consumption-based asset pricing model with a generalized disappointment averse (GDA) investor and i.i.d. consumption growth, this feature results in a realistic equity premium for low levels of risk aversion.
"Misallocation Cycles", 11/2016 [pdf]
with Cedric Ehouarne and Lars-Alexander Kuehn
6th Advances in Macro-Finance Tepper-LAEF Conference 2015, AZ Junior Finance Conference 2016, Duke/UNC Asset Pricing Conference 2016, SED 2016, EFA 2016, BYU Red Rock Finance Conference 2016, AEA 2017, WFA 2017, FMA 2017
We estimate a general equilibrium model with firm heterogeneity and a representative household with Epstein-Zin preferences. Firms face investment frictions and permanent shocks, which feature time-variation in common idiosyncratic skewness. Quantitatively, the model replicates well the cyclical dynamics of the cross-sectional output growth and investment rate distributions. Economically, the model generates business cycles through inefficiencies in the allocation of capital across firms. These cycles arise because (i) permanent Gaussian shocks give rise to a power law distribution in firm size and (ii) rare negative Poisson shocks cause time-variation in common idiosyncratic skewness. Despite the absence of firm-level granularity, a power law in the firm size distribution implies that idiosyncratic Poisson shocks have a large effect on the dynamics of aggregate consumption and wealth. In addition, shocks to aggregate wealth spill over to all firms in the economy because of Epstein-Zin preferences.
"Credit and Option Risk Premia", 11/2017
with Lars-Alexander Kuehn and Florian Schulz
2017 University of Connecticut Annual Academic Conference on Risk Management, 2017 University of Minnesota Macro Asset Pricing Conference, 2017 FMA Conference on Derivatives and Volatility, SFS Cavalcade 2018
The goal of this paper is to extract the joint distribution of default probabilities and loss rates from the prices of credit default swaps and equity options. To this end, we estimate a structural model of credit risk with a representative agent with recursive preferences and Markov-switching states for the drift and volatility of consumption and earnings growth. While CDS rates are sensitive to both risk-neutral default probabilities and loss rates to bond holders, equity option prices are only sensitive to default probabilities because equity holders recovery almost nothing in bankruptcy. Using the information in both CDS rates and put option prices, we can recover the level and cyclicality of default probabilities, loss rates, and bankruptcy costs.
"Tails, Fears, and Equilibrium Option Prices" [new draft coming soon]
SFS Cavalcade 2016, ESSFM Gerzensee 2016 (evening program)
I construct a parsimonious consumption-based asset pricing model based on a generalized disappointment averse investor and show that it is consistent with several stylized facts from index option prices.
"Optimal Volatility Timing: A Life-Cycle Perspective"
with Jan Schneemeier
We study the role of time-varying stock return volatility in a consumption and portfolio choice problem for a life-cycle investor facing short-selling and borrowing constraints.
 Volatility Risk Pass-Through
by Colacito, Croce, Liu, and Shaliastovich
WFA 2017 [slides]
 Asymmetries and Portfolio Choice
by Dahlquist, Farago, and Tedongap
EFA 2016 [slides]
 Emergency Preparedness -- Rare Events and the Persistence of Uncertainty
ESSFM Gerzensee 2016 [slides]
 One-Factor Asset Pricing
by Delikouras and Kostakis
MFA 2016 [slides]
 Interest rate risk and corporate hedging
by Bretscher, Mueller, Schmid, and Vedolin
EFA 2015 [slides]
 Ambiguity Aversion and Household Portfolio Choice Puzzles: Empirical Evidence
by Dimmock, Kouwenberg, Mitchell, and Peijnenburg
WFA 2014 [slides]