In this note, I show how to set up a local Mongo DB database to house CRSP-COMPUSTAT data. I grew tired of having to use SAS to access these data on the WRDS server. The coding language is difficult to use and the server is not particularly … [Continue reading]
Standard Error Estimation with Overlapping Samples
1. Introduction In this post, I show how to compute corrected standard errors for a predictive regression with overlapping samples as in Hodrick (1992). First, in Section 2, I walk through a simple example which outlines the general empirical … [Continue reading]
Co-Movement Between Bond and Stock Risk Premia
1. Introduction I compare the covariance between the bond risk premium as captured by the Cochrane and Piazzesi (2005) factor and the stock risk premium as captured by the logarithm of the price to dividend ratio as used in, say, Shiller (2006). … [Continue reading]
Pearson-Wong Diffusions
1. Introduction I introduce the concept of Pearson-Wong diffusions and then show how this mathematical object can be put to use in macro-finance. Roughly speaking, Pearson-Wong diffusions link properties of stochastic processes to properties of … [Continue reading]
The Predictability and Volatility of Returns in the Presence of Rare Disasters
1. Introduction I characterize the relationship between the variance premium at time $t$ and the excess returns over the next $h$ months in an economy with variable rare disasters as outlined in Gabaix (2011) using the parameter estimates given in … [Continue reading]