nep-fmk New Economics Papers
on Financial Markets
Issue of 2009‒12‒05
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. An Extended Macro-Finance Model with Financial Factors By Dewachter, Hans; Iania, Leonardo
  2. Skewness in Stock Returns, Periodic Cash Payouts, and Investor Heterogeneity By Albuquerque, Rui

  1. By: Dewachter, Hans; Iania, Leonardo
    Abstract: This paper extends the benchmark Macro-Finance model by introducing, next to the standard macroeconomic factors, additional liquidity-related and return forecasting factors. Liquidity factors are obtained from a decomposition of the TED spread while the return-forecasting (risk premium) factor is extracted by imposing a single factor structure on excess holding returns. The model is estimated on US data using MCMC techniques. Two findings stand out. First, the model outperforms Macro-Finance benchmark models in fitting the yield curve. Second, financial shocks, either in the form of liquidity or risk premium shocks, have a statistically and economically significant impact on the yield curve.
    Keywords: Term structure, Macro-finance, TED spread, Interbank lending rates
    JEL: E43 G12 E44 C11
    Date: 2009–10–02
  2. By: Albuquerque, Rui
    Abstract: This paper analyzes the asset pricing implications of periodic cash payouts within the context of a stationary rational expectations model with heterogeneous investors. The periodicity of cash payouts provides a natural motivation for time-varying conditional volatility in stock returns. I show that the unconditional distribution of returns is a mixture of normals distribution, which has non-trivial skewness properties. I examine how conditional volatility, trading volume and skewness in stock returns are related to information dispersion and liquidity in the stock market. The model provides a rationale for why firm returns have positive skewness while market returns have negative skewness.
    Keywords: investor heterogeneity; periodic cash payouts; Skewness; turnover
    JEL: G12 G14
    Date: 2009–11

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