Papers In Preparation
What Triggers National Stock Market Jumps?
Joint with Scott Baker, Nicholas Bloom and Steven Davis
Abstract: Based on readings of next-day newspaper articles, we catalog the proximate cause and geographic source of all largest 1% of daily stock market movements in 14 countries over the past 30 years. Our catalog extends back to 1930 for the United Kingdom and to 1900 for the United States. Using the United States as a test case, we compare categorizations across several newspapers and human coders, obtaining consistent results. News about the United States plays a disproportionate role in triggering large equity moves around the world in recent decades, relative to the U.S. share of world output. The reverse pattern, of large U.S. equity moves in response to foreign news, is comparatively rare. Across almost all countries, the share of large stock market moves associated with government policy increased during and after the Global Financial Crisis of 2008-09. We show that shocks of different types and geographic origins are associated with significant differences in returns and both implied and realized volatility.
Pricing Dollar Strength Risk (Revision 8/2017)
Joint with Marcelo Bianconi
Abstract: The relative strength of the U.S. dollar does not explain the cross-section of expected returns. We find, however, that signed sensitivity of individual firms’ returns to moves in dollar strength matters for asset pricing. A portfolio that goes long high-dollar-sensitivity stocks and short low-dollar-sensitivity stocks earns a multi-factor alpha of 3%-7% per year. Sorting on dollar sensitivity captures firm fundamentals - in particular fraction of revenue from abroad. Dollar sensitivity has implications for profitability and fundamental momentum, as well as the relationship between momentum strategies across countries.
Environmental, Social, and Governance Criteria: Why Investors Are Paying Attention (Journal of Investment Management, January 2018)
Joint with Ravi Jagannathan and Ashwin Ravikumar
Abstract: We find that money managers could reduce portfolio risk by incorporating Environmental, Social, and Governance (ESG) criteria into their investment process. ESG-related issues can cause sudden regulatory changes and shifts in consumer tastes, resulting in large asset price swings which leave investors limited time to react. By incorporating ESG criteria in their investment strategy, money managers can tilt their holdings towards firms which are well prepared to deal with these changes, thereby managing exposure to these rare but potentially large risks.
Implied Volatility and the Risk-Free Rate of Return in Options Markets (Published 1/2015)
Based on my Senior Honors Thesis at Tufts University.
Abstract: We numerically solve systems of Black-Scholes formulas for implied volatility and implied risk-free rate of return. After using a seemingly unrelated regressions (SUR) model to obtain point estimates for implied volatility and implied risk-free rate, the options are re-priced using these parameters.
After repricing, the difference between the market price and model price is increasing in time to expiration, while the effect of moneyness and the bid-ask spread are ambiguous.
Our varying risk-free rate model yields Black- Scholes prices closer to market prices than the fixed risk-free rate model. In addition, our model is better for predicting future evolutions in model-free implied volatility as measured by the VIX.