A Model-based Commodity Risk Measure on Commodity and Stock Market Returns

(with  Emmanouil Platanakis, Xiaoxia Ye and Guofu Zhou)  SSRN version  DATA PAGE


Abstract

We propose a novel measure of the ex-ante commodity downside-risk premium (CDP) for each commodity based on a term structure model of commodity futures. Our theory-based CDP, capturing forward-looking information in the futures markets, outperforms well-known characteristics in explaining the cross-section of commodity returns. The CDP factor -- the high minus low portfolio constructed from sorting CDP -- has the highest Sharpe ratio among existing factors, and none of the latter can explain it, implying it has substantial new information. Moreover, various aggregations of individual commodity CDP predict future stock market returns significantly, even after controlling for major economic predictors. The link between commodities and the stock market is stronger than previously thought.

Term Premia Co-movement and Global Trade Network

(with Caihong Xu and Xiaoxia Ye) SSRN version


Abstract


In this paper, we study how the global trade network provides a channel through which term premia comove and transmit across a large group of countries consisting of both developed and developing economies. We provide the theoretical derivations on why the term premia may decrease with the trade

network centrality and conjuncture that the information contained in the trade network can predict the trading partners’ term premium change. We test our theoretical predictions with empirical analyses using both trade data and bond yields across different maturities from 37 countries. We show that the

links of the global trade network contain useful information in explaining the variations in term premia through time and cross countries. Term premia co-movement and transmission are more pronounced among the developed countries than the developing countries. The theoretical and empirical evidence

in this paper indicate the propagation of global and local country shocks transferring in the global macro-economy through the global trade network.


Effects of Economic Policy Uncertainty Shocks on the Long-Run US-UK Stock Market Correlation

(with Hossein Agharian & Carlotte Christiansen) SSRN version 


Abstract

We use the economic policy uncertainty indices of Baker, Bloom, and Davis (2016) in combination with themixed data sampling (MIDAS) approach to investigate the US and UK stock market movements. The long-runUS-UK stock market correlation depends positively on US economic policy uncertainty shocks. The US long-run stock market volatility depends significantly on the US economic policy uncertainty shocks but not on UK shocks while the UK depends significantly on both.


The variance based efficiency test of the OMX Index option market

(with Magnus Wiktorsson,  RuiZhi, Zhao). SU Working Paper Version 


Abstract

We use the economic policy uncertainty indices of Baker, Bloom, and Davis (2016) in combination with themixed data sampling (MIDAS) approach to investigate the US and UK stock market movements. The long-runUS-UK stock market correlation depends positively on US economic policy uncertainty shocks. The US long-run stock market volatility depends significantly on the US economic policy uncertainty shocks but not on UK shocks while the UK depends significantly on both.