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    The problem of completeness of the forward rate based bond market model driven by a L\'evy process under the physical measure is examined. The incompleteness of market in the case when the L\'evy measure has a density function is shown. The required elements of the theory of stochastic integration over the compensated jump measure under a martingale measure is presented and the corresponding integral representation of local martingales is proven. read more...

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    The intensity of a default time is obtained by assuming that the default indicator process has an absolutely continuous compensator. Here we drop the assumption of absolute continuity with respect to the Lebesgue measure and only assume that the compensator is absolutely continuous with respect to a general $\sigma$-finite measure. This allows for example to incorporate the Merton-model in the generalized intensity based framework. An extension of the Black-Cox model is also considered. We propose a class of generalized Merton models and study absence of arbitrage by a suitable modification of the forward rate approach of Heath-Jarrow-Morton (1992). Finally, we study affine term structure models which fit in this class. They exhibit stochastic discontinuities in contrast to the affine models previously studied in the literature. read more...

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    The UK needs to start fracking to establish the economic impact of shale gas, according to an industry-funded body.

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    Seattle council has passed a measure allowing drivers for smartphone-based taxi services such as Uber to join a union.

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    The Australian government is planning an A$800m initiative to inspire a bolder entrepreneurial spirit that embraces greater risk.

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    Qantas said it expected to post better-than-expected profits for the six months to December, boosted by lower oil prices.

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    American Financial ExchangeSM (AFXSM), an electronic marketplace for small and mid-sized banks to lend and borrow short-term funds, announced today the results of its first day of trading on Friday, December 11, 2015.  Exceeding expectations, a total value of $15 million was transacted on the first day of operations.read more...

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    Investors in Asia were cautious on Tuesday as oil prices recovered slightly and the US Federal Reserve prepares for its two-day meeting, which starts later.

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    Last week, Shenzhen Component Index tumbled 1.6% to 12134.0 points. SME Index closed at 8082.7 points after losing 1.9%. ChiNext Index was down 0.8% to 2671.3 points. Total turnover for stocks and funds on SZSE was US$358.7 billion, or an 11.5% decrease from the week before.read more...

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    Business schedule for the year-end / new year is as follows.read more...

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    The Truth About Employee Engagement was originally published as The Three Signs of a Miserable Job. A bestselling author and business guru tells how to improve job satisfaction and performance.read more...

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    It is a major challenge for asset pricing models to generate a high equity premium and a low risk-free rate while imposing realistic consumption dynamics. To address this issue, our paper proposes a novel pricing channel: we allow for consumption drops that can spark an economic crisis. This new feature generates a large equity premium even if possible consumption drops are of moderate size. In turn, our model also matches the consumption data of 42 countries along several dimensions. In particular, our approach generates a realistic number of crises that have realistic durations and involve clustering of moderate consumption drops.read more...

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    High expected inflation is known to predict low future real growth. We show that, relative to nondurable goods sectors of the economy, such predictability is significantly more pronounced in durable sectors. Consistent with this macroeconomic evidence, the equity returns of durable goods-producing firms have a larger negative exposure to expected inflation risks. We estimate a two-good recursive utility model that features persistent growth fluctuations and inflation nonneutrality for durable and nondurable consumption. Our model can quantitatively account for the levels and volatilities of bond and equity prices, and correlations of equity returns with bond returns and with expected inflation.read more...

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    In standard production models, wage volatility is far too high, and equity volatility is far too low. A simple modification–sticky wages because of infrequent resetting together with a constant elasticity of substitution (CES) production function leads to both smoother wages and higher equity volatility. Further, the model produces several other hard-to-explain features of financial data: high Sharpe ratios, low and smooth interest rates, time-varying equity volatility and premium, a value premium, and a downward-sloping equity term structure. Procyclical, volatile wages are a hedge for firms in standard models; smoother wages act like operating leverage, making profits and dividends riskier.read more...

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    We study the after-trading-cost performance of anomalies and the effectiveness of transaction cost mitigation techniques. Introducing a buy/hold spread, with more stringent requirements for establishing positions than for maintaining them, is the most effective cost mitigation technique. Most anomalies with less than 50% turnover per month generate significant net spreads when designed to mitigate transaction costs; few with higher turnover do. The extent to which new capital reduces strategy profitability is inversely related to turnover, and strategies based on size, value, and profitability have the greatest capacity to support new capital. Transaction costs always reduce strategy profitability, increasing data-snooping concerns.read more...

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    A five-factor model that adds profitability (RMW) and investment (CMA) factors to the three-factor model of Fama and French (1993) suggests a shared story for several average-return anomalies. Specifically, positive exposures to RMW and CMA (stock returns that behave like those of profitable firms that invest conservatively) capture the high average returns associated with low market β, share repurchases, and low stock return volatility. Conversely, negative RMW and CMA slopes (like those of relatively unprofitable firms that invest aggressively) help explain the low average stock returns associated with high β, large share issues, and highly volatile returns.read more...

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    Hundreds of papers and factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make sense to use the usual criteria for establishing significance. Which hurdle should be used for current research? Our paper introduces a new multiple testing framework and provides historical cutoffs from the first empirical tests in 1967 to today. A new factor needs to clear a much higher hurdle, with a t-statistic greater than 3.0. We argue that most claimed research findings in financial economics are likely false.read more...

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  • 12/14/15--22:53: Forthcoming Articles

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  • 12/14/15--22:54: Editorial Board

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