Intra-Industry Lead-Lag Effect

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1. Introduction Hou (2007) documents a really interesting phenomenon in asset markets. Namely, if the largest securities in an industry as measured by market capitalization perform really well in the current week, then the smallest securities in … [Continue reading]

Investigation Bandwidth

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1. Motivation Time is dimensionless in modern asset pricing theory. e.g., the canonical Euler equation: \begin{align} P_t &= \widetilde{\mathrm{E}}_t[ \, P_{t+1} + D_{t+1} \, ] \label{eqn:euler} \end{align} says that the price of an asset at … [Continue reading]

The Secrets N Prices Keep

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1. Introduction Prices are signals about shocks to fundamentals. In a world where there are many stocks and lots of different kinds of shocks to fundamentals, traders are often more concerned with identifying exactly which shocks took place than … [Continue reading]