BUSCADOR RECOLECTA

This paper shows how risk aversion and economic uncertainty affect the expected market risk premium. Under a habit preference macro-finance model with time-varying risk aversion, we show a significant amplifying effect of risk aversion on the expected market risk premium over and above economic uncertainty shocks. Although our full sample period is from January 1961 to March 2020, the results are robust to different sample periods and alternative estimation procedures, including the lower bound expected market risk premium based on option prices., The authors acknowledge financial support from the Ministry of Science, Innovation and Universities through grant PGC2018-095072-B-I00 and from Generalitat Valencia grant Prometeo/2017/158.

Institutional investors often have to decide which strategy to use across international business cycles. This is especially important during economic and financial crises. The exogenous nature of the outbreak of the dramatic COVID-19 crisis represents a unique opportunity to understand the performance of risk factors during severe economic times across international stock markets. Even more important is to analyze how these factors behave across very different economic crises, such as the COVID-19 pandemic and the Great Recession. Although, the overall results show that the momentum and quality factors are the winners, with the value factor as the loser, this research also reports different responses of factors across crises and countries. The size, value, and defensive factors tend to perform worse during the health crisis relative to the Great Recession, while the momentum factor shows a poor performance during the financial crisis, but a positive one during the outbreak of COVID-19. The quality factor is an extraordinary defensive factor in both crises. Similarly, this paper reports heterogeneous responses of option-implied expected market risk premia across alternative stock market indices, and between the Great Recession and the COVID-19 crisis., The authors acknowledge financial support from the Ministry of Science, Innovation, and Universities through grant PGC2018-095072-B-I00. In addition, they acknowledge financial support from Generalitat Valencia grant Prometeo/2017/158.

Macro-finance asset pricing models provide a rationale for connectedness dynamics between equity and Treasury risk-neutral volatilities. In this paper, we study the total and directional connectedness, in the sense of spillover effects, between risk-neutral volatilities from the equity and Treasury markets. In addition, we analyze the economic and monetary drivers of connectedness dynamics. Most of the time, but especially during bad economic times, we find significant net spillovers from Treasury to equity risk-neutral volatility. The spillover channel between risk-neutral volatilities arises mainly through the government fixed income market., This study was funded by the Ministerio de Ciencia, Innovación y Universidades (PGC2018-095072-B-I00), the Conselleria d’Educació, Investigació, Cultura I Esports (Prometeo/2017/158), the Secretaría de Estado de Investigación, Desarrollo e Innovación (PID2019-104304-GB-I00), and the Universidad Pública de Navarra (Grant for Young Researchers, 2018).

Employing out-of-sample non-parametric estimation techniques, we show that market-wide liquidity risk matters for asset pricing independently of the specific functional form of the stochastic discount factor (SDF) and, therefore, of the asset pricing model specification. Market-wide illiquidity significantly affects the distribution of the SDF. Specifically, it boosts up the volatility of the SDF, causing minor effects on higher moments of its distribution. This finding is robust to the use of different sets of test assets in the estimation of the SDF, including equity and corporate bond portfolios, and the use of a high-dimensional data estimation procedure., Authors acknowledge the research grant PRPPID2021-125317NB-I00, funded by MCIN/AEI /10.13039/501100011033/ and “ERDF A way of making Europe “. They also acknowledge the financial support from Generalitat Valencia Grant Prometeo/2017/158. Moreover, they recognize the support from projects ECO2017-86903-P (Abad and Pascual), ECO2017-87069-P (Abad), and PGC2018-095072-B-I00 (Nieto and Rubio) from the Ministerio de Ciencia, Innovación y Universidades.

This paper examines the predictive power of the main default-risk measures used by both academics and practitioners, including accounting measures, market-price-based measures and the credit rating. Given that some measures are unavailable for some firm types, pair wise comparisons are made between the various measures, using same-size samples in every case. The results show the superiority of market-based measures, although their accuracy depends on the prediction horizon and the type of default events considered. Furthermore, examination shows that the effect of within-sample firm characteristics varies across measures. The overall finding is of poorer goodness of fit for accurate default prediction in samples characterised by high book-to-market ratios and/or high asset intangibility, both of which suggest pricing difficulty. In the case of large-firm samples, goodness of fit is in general negatively related to size, possibly because of the 'too-big-to-fail' effect., This paper has been possible thanks to the SANFI Research Grant for Young Researchers Edition 2015, the financial support from the Spanish Ministry of Economy, Industry and Competitiveness (ECO2016-77631-R (AEI/FEDER, UE)) and the Spanish Ministry of Science and Innovation (PID2019-104304GB-I00/AEI/10.13039/501100011033). Ana González Urteaga particularly acknowledges financial support from the Spanish Ministry of Science, Innovation and Universities through grant PGC2018-095072-B-I00.