New research paper on the value premium online

posted Nov 22, 2018, 8:21 AM by Julian Thimme

My new working paper "Fuel is Pumping Premiums: A Consumption-based Explanation of the Value Anomaly", coauthored by Robert Dittmar and Christian Schlag, can be downloaded here. In this paper, we question the standard approach in empirical consumption-based asset pricing to use nondurables and services as a proxy for consumption. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute gasoline consumption by consumption of other nondurable goods or services. As a consequence, gasoline consumption shows up as a separate factor in the pricing kernel. Cross-sectional variation in gasoline consumption betas explains a large part of the value premium. Using a textual analysis of individual firms' 10-K reports, we find that the energy-intensity of firms' businesses are strongly positively related to their book-to-market ratios of equity. As a consequence, value stocks are riskier than growth stock because they suffer from the same energy supply shocks that also affect households.

New version of Elephants paper online

posted Nov 22, 2018, 8:12 AM by Julian Thimme   [ updated Nov 22, 2018, 8:14 AM ]

In the new version of my paper "Elephants and the Cross-Section of Expected Returns" with Nora Laurinaityte, Christoph Meinerding, and Christian Schlag, we show that there is a flaw in the design of GMM cross-sectional tests. As a result, factors with little explanatory power can seem highly significant and the explanatory power can be spuriously high. We show that this effect is present for weak and for strong factors and that irrelevant factors (betas to these are not related to expected returns in the cross-section) have the potential to drive out relevant ones. We suggest that authors should always report and discuss their estimates of the factor means which happen to be far away from the sample averages in case of a spuriously high pricing performance.
The new version of the paper can be downloaded here.

"Vol-of-vol" accepted for publication in the JFQA

posted Aug 10, 2018, 9:01 AM by Julian Thimme   [ updated Aug 10, 2018, 9:02 AM ]

My paper Volatility-of-Volatility Risk, coauthored by Darien Huang, Christian Schlag, and Ivan Shaliastovich, is accepted for publication in the Journal of Financial and Quantitative Analysis.

New versions of "Up- and Down"- and "Predictability"-papers online

posted Jul 23, 2018, 1:53 AM by Julian Thimme   [ updated Jul 23, 2018, 1:54 AM ]

We revised our paper "Up- and Downside Variance Risk Premia in Global Equity Markets". It can be downloaded here.
We also revised our paper "Predictability and the Cross-Section of Expected Returns: A Challenge for Asset Pricing Models". It can be found here.

Teaching award for AEAP

posted Mar 30, 2018, 3:04 PM by Julian Thimme   [ updated Mar 30, 2018, 3:10 PM ]

My course on "Advanced Empirical Asset Pricing" in the winter term 2017/2018 won the teaching award for the best course in the Master's programme of the Faculty of Economics and Business Administration. I would like to thank my students for the positive feedback and the great semester. I really enjoyed it.

New version of Elephant paper online

posted Jan 29, 2018, 1:56 PM by Julian Thimme

The brand new version of our elephant paper is now online and can be downloaded here.

The price impact of Asian elephants

posted Nov 22, 2017, 9:38 AM by Julian Thimme

My new paper, coauthored by Nora Laurinaityte, Christoph Meinerding, and Christian Schlag, shows that the population growth of captive Asian elephants explains the cross-section of expected returns with a cross-sectional R^2 of 93% and a t-statistic of 4.0 for the market price of risk... NOT! We rather show that standard GMM cross-sectional asset pricing tests can generate spurious explanatory power for factor models when the weight on certain moment conditions is set inappropriately. In fact, by shifting the weights in the GMM, any desired level of cross-sectional fit can be attained at the price of not matching the factor means. We run placebo tests with factors that by construction do not explain the cross-section of expected returns and obtain spuriously high cross-sectional R^2's. Finally, we document examples of factor models proposed in the literature that suffer from this bias. The paper can be downloaded here.

"IVD and the ERP" wins Best Paper Award

posted Oct 16, 2017, 7:20 AM by Julian Thimme

Our working paper Implied Volatility Duration and the Early Resolution Premium was honored with the Best Paper Award of the 24th Annual Meeting of the German Finance Association (DGF) at Ulm University. We are very happy about this award and keen on comments and suggestions for the new version of the paper that is coming soon.

New version of paper on the early resolution premium online

posted Jun 28, 2017, 7:21 AM by Julian Thimme

The revised version of our paper "Implied Volatility Duration and the Early Resolution Premium" is now available and can be downloaded here.

New research on investors' preferences regarding the timing of uncertainty resolution

posted Dec 7, 2016, 8:17 AM by Julian Thimme   [ updated Dec 7, 2016, 8:20 AM ]

My new working paper "Implied Volatility Duration and the Early Resolution Premium", coauthored by Christian Schlag and Ruediger Weber, deals with investors' preferences regarding the timing of resolution of uncertainty. We argue that our new measure, called "Implied Volatility Duration" quantifies for a particular stock when uncertainty about the stock's cash-flows are resolved. By looking at the cross-section of stock returns, we find that stocks that exhibit late resolution of uncertainty have to pay an annual premium of seven percent. This phenomenon has a risk-based explanation and we rationalize it in a general equilibrium model featuring a rational agent with recursive preferences. The paper can be downloaded here.

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