Consistent estimation of the risk-return tradeoff in the presence of measurement error

Prominent asset pricing models imply a linear, time-invariant relation between the equity premium and its conditional variance. We propose an approach to estimating this relation that overcomes some of the limitations of the existing literature. First, we do not require any functional form assumptions about the conditional moments. Second, the GMM approach is used to overcome the endogeneity problem inherent in the regression. Third, we correct for the measurement error arising because of using a proxy for the latent variance. The empirical findings reveal significant time-variation in the relation that coincide with structural break dates in the market-wide price-dividend rati

Consistent estimation of the risk-return tradeoff in the presence of measurement error

Prominent asset pricing models imply a linear, time-invariant relation between the equity premium and its conditional variance. We propose an approach to estimating this relation that overcomes some of the limitations of the existing literature. First, we do not require any functional form assumptions about the conditional moments. Second, the GMM approach is used to overcome the endogeneity problem inherent in the regression. Third, we correct for the measurement error arising because of using a proxy for the latent variance. The empirical findings reveal significant time-variation in the relation that coincide with structural break dates in the market-wide price-dividend ratio.Bias-Correction, Measurement Error, Nonparametric Volatility, Return, Risk

Consumption Partial Insurance in the Presence of Tail Income Risk

We measure the extent of consumption insurance to income shocks accounting for high-order moments of the income distribution. We derive a nonlinear consumption function, in which the extent of insurance varies with the sign and magnitude of income shocks. Using PSID data, we estimate an asymmetric pass-through of bad versus good permanent shocks – 17% of a 3σ negative shock transmits to consumption compared to 9% of an equal-sized positive shock – and the pass-through increases as the shock worsens. Our results are consistent with surveys of consumption responses to hypothetical events and suggest that tail income risk matters substantially for consumption

Consumption Partial Insurance in the Presence of Tail Income Risk

We measure the extent of consumption insurance to income shocks accounting for high-order moments of the income distribution. We derive a nonlinear consumption function, in which the extent of insurance varies with the sign and magnitude of income shocks. Using PSID data, we estimate an asymmetric pass-through of bad versus good permanent shocks -- 17% of a 3 sigma negative shock transmits to consumption compared to 9% of an equal-sized positive shock -- and the pass-through increases as the shock worsens. Our results are consistent with surveys of consumption responses to hypothetical events and suggest that tail income risk matters substantially for consumption

Application of Essential Oil Compounds and Bacteriophage to Control Staphylococcus aureus

Staphylococcus aureus is one of the most important pathogens, causing various diseases in humans and animals. In addition, S. aureus is a common foodborne pathogen. As methicillin- resistant S. aureus (MRSA) becomes increasingly prevalent, controlling this pathogen in animals and humans with standard antibiotic treatment has become challenging. Combinations of different antimicrobial agents represent one of the most promising approaches for combating multidrug - resistant bacteria both for treatment of clinical disease as well as in food. Two such antimicrobials with potential application in the food industry include essential oils (EO) and host-specific bacteriophage (phage). The objectives of this study were 1) to determine the efficacy of varying concentrations of pure EOs compounds against S. aureus and 2) to evaluate the efficacy of a S. aureus-specific bacteriophage against 4 strains of S. aureus. The overall goal was to combine these antimicrobials to determine potential synergism and possible application for the control of S. aureus on raw chicken products. Four EO compounds were evaluated by disc diffusion assay to determine inhibitory effects against five strains of S. aureus. Next, a growth inhibition assay was performed using a 96-well plate bioassay to measure change in optical density over a 48-hour period. Phage adsorption assays were performed up to 120 h at 6, 13, and 37°C to determine lytic activity. The results from disc diffusion, growth inhibition, and phage adsorption assays indicate that EO compounds and bacteriophage can be used as antimicrobials against S. aureus. For application in the food industry, these antimicrobials were evaluated for their efficacy against S. aureus on raw chicken pieces at 6, 13, and 25°C. Results indicate that at 25°C phage K alone inhibits S. aureus growth better as compared to other antimicrobial combination. At 6 and 13°C, there was no significant effect of EO and phage alone or in combination against S. aureus when applied on the raw chicken pieces. Therefore, for these antimicrobials to work in vivo such as raw meat products, a better delivery method should be employed for a uniform application on meat

What is the Consumption-CAPM missing? An information-theoretic framework for the analysis of asset pricing models

We study a broad class of asset pricing models in which the stochastic discount factor (SDF) can be factorized into an observable component and a potentially unobservable, model-specific, one. Exploiting this decomposition we derive new entropy bounds that restrict the admissible regions for the SDF and its components. Without using this decomposition, to a second order approximation, entropy bounds are equivalent to the canonical Hansen-Jagannathan bounds. However, bounds based on our decomposition have higher information content, are tighter, and exploit the restriction that the SDF is a positive random variable. Our information-theoretic framework also enables us to extract a non-parametric estimate of the unobservable component of the SDF. Empirically, we find it to have a business cycle pattern, and significant correlations with both financial market crashes unrelated to economy-wide contractions, and the Fama-French factors. We apply our methodology to some leading consumption-based models, gaining new insights about their empirical performance

An information based one-factor asset pricing model

Given a set of asset returns, an information-theoretic approach is used to estimate non-parametrically the pricing kernel to price the given cross-section out-of-sample. Compared to leading factor models, this information SDF delivers smaller pricing errors and better cross-sectional fit, and identifies the maximum Sharpe ratio portfolio out-of-sample. Moreover, it extracts novel pricing information not captured by Fama-French and momentum factors, leading to an ‘information anomaly.' A tradable information portfolio that mimics this kernel has a very high out-of-sample Sharpe ratio, outperforming both the 1/N benchmark and the Value and Momentum strategies combined. These results hold for a wide cross-section of assets

The Predictability of Returns with Regime Shifts in Consumption and Dividend Growth

The predictability of the market return and dividend growth is addressed in an equilibrium model with two regimes. A state variable that drives the conditional means of the aggregate consumption and dividend growth rates follows different time-series processes in the two regimes. In linear predictive regressions over 1930-2009, the market return is predictable by the price-dividend ratio with R2 11.7% if the probability of being in the first regime exceeds 50%; and dividend growth is predictable by the price-dividend ratio with R2 28.3% if the probability of being in the second regime exceeds 50%. The model-implied state variables perform significantly better at predicting the equity, size, and value premia, the aggregate consumption and dividend growth rates, and the variance of the market return than linear regressions with the market price-dividend ratio and risk free rate as predictive variables.

Asset Pricing Tests with Long Run Risks in Consumption Growth

A novel methodology in testing the long-run risks model of Bansal and Yaron (2004) is presented based on the observation that, under the null, the potentially latent state variables, "long-run risk" and the conditional variance of its innovation, are known a¢ ne functions of the observable market-wide price-dividend ratio and risk free rate. In linear forecasting regressions of consumption growth and returns by the price-dividend ratio and risk free rate, the model implies much higher forecastability than what is observed in the data over 1931 –2009. The co-integrated variant of the model by Bansal, Gallant, and Tauchen (2007), also implies much higher forecastability of returns than what is observed in the data. Finally, we reject the models' implications in jointly pricing the cross-section of returns and fitting the unconditional time series moments of consumption and dividend growth. The results suggest that either some important state variable is missing or that the models should be generalized in a way that the lagged price-dividend ratio and risk free enter the regressions in a non-linear fashion.

TUSH-Key: Transferable User Secrets on Hardware Key

Passwordless authentication was first tested for seamless and secure merchant payments without the use of passwords or pins. It opened a whole new world of authentications giving up the former reliance on traditional passwords. It relied on the W3C Web Authentication (WebAuthn) and Client to Authenticator Protocol (CTAP) standards to use the public key cryptosystem to uniquely attest a user's device and then their identity. These standards comprise of the FIDO authentication standard. As the popularity of passwordless is increasing, more and more users and service providers are adopting to it. However, the concept of device attestation makes it device-specific for a user. It makes it difficult for a user to switch devices. FIDO Passkeys were aimed at solving the same, synchronizing the private cryptographic keys across multiple devices so that the user can perform passwordless authentication even from devices not explicitly enrolled with the service provider. However, passkeys have certain drawbacks including that it uses proprietary end to end encryption algorithms, all keys pass through proprietary cloud provider, and it is usually not very seamless when dealing with cross-platform key synchronization. To deal with the problems and drawbacks of FIDO Passkeys, the paper proposes a novel private key management system for passwordless authentication called Transferable User Secret on Hardware Key (TUSH-Key). TUSH-Key allows cross-platform synchronization of devices for seamless passwordless logins with FIDO2 specifications