We investigate the role of geopolitical risk in the cross-sectional pricng of equities. We estimate the exposure of assets to the geopolitical risk and show that the highest geopolitical risk beta portfolio can generate 3.99\% more annual excess return than the lowest one, which cannot be explained by the three-factor and five-factor models. We separate the geopolitical risk into geopolitical threats and acts and find that threat is the main driver of geopolitical risk premium. Furthermore, geopolitical risk premium is related to investor sentiment and cannot be explained or subsumed by other economic factors (i.e., economic policy uncertainty). These findings suggest that geopolitical risk is an economically important risk factor.
I build a tractable dynamic stochastic general equilibrium model embedded with endogenous entry. In this economy, successful implementation of heterogeneous production innovations by entrepreneurs contributes to economic growth. Facing barrier to entry, entrepreneurs with products of sufficiently high productivity successfully enter the market. The volatility in the endogenous selection of entrants gives rise to an increase in long-run uncertainty of growth prospects. With recursive preference, the household requires a high risk premium to compensate the long-run risk. The calibrated endogenous entry model can produce an equity premium of 4.08%, and a low and stable risk-free rate of 0.60%. If I introduce another exogenous shock -- entry shock that fluctuates the barrier to entry, I find an even higher level of equity premium. Moreover, when the entry shock is pro-cyclical, it amplifies the effect of endogenous entry on long-run risk and enhances equity premium. In particular, if the correlation between entry shock and aggregate shock is 0.4, the calibrated equity premium is 5.72%. When I extend the baseline model to incorporate fiscal policy and pro-cyclical industrial policy, the extended model quantitatively replicates key features of equity premium and risk-free rate.
Truncation-by-death refers to a situation in clinical trials where mortality happens before the primary outcomes are collected, leaving the primary outcomes undefined. By principal stratification, a meaningful causal estimand termed the survivor average causal effect is defined in a subpopulation who will always survive regardless of being treated or controlled. We consider estimation and inference of this estimand using the sure outcomes of random events model. The sure outcomes of random events model visually exhibits core identification assumptions by introducing some latent variables, with explicit connection between latent variables and principal strata. Causal pathways from the treatment to outcome are established via observed variables and latent variables. The survival and outcome are considered to be consequences of a natural cause and a treatment-induced cause. Since survival is measured before the outcome, we allow the natural cause of survival to modify the natural cause of outcome. We also consider interventionist estimands by manipulating the causes. The proposed method is applied to investigate the effect of transplantation type on leukemia relapse undergoing allogeneic stem cell transplantation.
This paper provides the first piece of empirical evidence regarding the impact of health cost risk on individuals' annuitization decisions. We find that health cost risk increases the probability of individuals' pension participation but decreases the amount of pension contributions. We show that the substitution effect of informal insurance on pensions leads to these seemingly contradictory results. The impact of health cost risk on pension participation and contributions is negative and consistent with the mainstream theory after accounting for the effect of informal insurance. The substitution effect of informal insurance on pensions is stronger, and thus mitigates the impact of health cost risk more pronounced for households that have better-educated children, lower incomes, and more informal social networks and in regions that have a higher male–female ratio, that have higher mobility, or are less developed; but this substitution effect does not differ depending on their children's gender. This study improves our understanding of the relationship between health cost risk and individuals' annuitization decisions as well as the role of informal insurance in this relationship.
We explore a broad range of high-frequency liquidity measures for the Chinese stock market based on a comprehensive tick-level dataset consisting of approximately 16.7 billion events. We summarize their liquidity levels and key distributional, time-series, and cross-sectional patterns. Order interarrival times follow Weibull---not exponential---distributions, implying that Poisson flow is not an appropriate model for order flow. We find novel intraday periodicities in liquidity at 1-minute, 5-minute, and 10-minute frequencies. We propose the aggressive-passive imbalance (API) and develop a model for the change in bid-ask spread that sheds light on the universal mechanism of spread formation with respect to order flows.