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]
Correct Prices Are Not Free
1. Introduction It takes hard work to maintain prices at their fundamental values. Accurate, responsive and informative prices do not occur by magic. Analysts have to diligently monitor firms prospects and security prices. Market makers have to … [Continue reading]
Dyson Brownian Motion
1. Introduction I outline the construction of Dyson Brownian motion which governs the evolution of the eigen-values of an $(N \times N)$-dimensional stochastic process of Hermitian matrices. For instance, if $A(t)$ is such a process, … [Continue reading]
Business Cycle Patterns
The chart below contains macroeconomic and financial data on the US economy from 1775 to 1943. The chart is from the St. Louis Federal Reserve Fraser Archives. I've run across this chart several times over the course of the past year and I find new … [Continue reading]
Using the Front Door Criterion
1. Introduction[1. I am currently working on a paper with Chris Mayer in which we use this identification strategy to parse the causal effect of introducing out of town second home buyers into a housing market on local house prices. In this setting … [Continue reading]