Safety first, loss probability, and the cross section of expected stock returns

The Cross - Section of Stock Returns :

Continuous Beta, Discontinuous Beta, and the Cross-Section of Expected Stock Returns∗

Aggregate stock market returns are naturally categorized as either small or large movements. In the continuous-time model setup, we can formally identify these movements as continuous or discontinuous (jump). Using a large, novel, highfrequency dataset, I investigate how individual stocks respond to these two different market changes. I also explore whether the different systematic risks associ...

Text-implied Risk and the Cross-section of Expected Stock Returns Job Market Paper

This paper establishes an econometric framework to construct a systematic risk factor from textual data, by linking a beta pricing model with a language model based on machine learning techniques. In this framework, the distributions of stock returns and words in associated documents are determined by a common underlying systematic risk factor (text-implied risk). The exposure to the text-impli...

The Cross-Section of Volatility and Expected Returns

We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. Stocks with high idiosyncratic volatility relative to the Fama and French (1993, Journal of Financial Economics 25, 2349) model have abysmally low average returns. This phen...

Forecast Dispersion and the Cross-section of Expected Returns

Recent work by Diether, Malloy, and Scherbina (2002) has established a negative relationship between stock returns and the dispersion of analysts’ earnings forecasts. I offer a simple explanation for this phenomenon based on the interpretation of dispersion as a proxy for unpriced information risk arising when asset values are unobservable. The relationship then follows from a general options-p...