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ÔExpectations of equity risk premia, volatility and asymmetry from a corporate finance perspectiveÕ, NBER Working Paper no
, 2001
"... We present new evidence on the distribution of the ex ante risk premium based on a multiyear survey of Chief Financial Officers (CFOs) of U.S. corporations. We have responses from surveys conducted from the second quarter of 2000 through the second quarter of 2003. We find evidence that the oneyea ..."
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We present new evidence on the distribution of the ex ante risk premium based on a multiyear survey of Chief Financial Officers (CFOs) of U.S. corporations. We have responses from surveys conducted from the second quarter of 2000 through the second quarter of 2003. We find evidence that the oneyear risk premium is highly variable through time, while the tenyear expected risk premium is stable and equal to approximately 3.8%. For oneyear premia, after periods of negative returns, CFOs significantly reduce their market forecasts, and return distributions are more skewed to the left. We also examine an important prediction of asset pricing theory: a positive tradeoff between ex ante returns and ex ante volatility. In a unique test, we examine this tradeoff in a crosssection of individual respondents. We find that time horizon plays and important role. While there is little evidence of a significant relation between expected returns and variance at the oneyear horizon, there is a strong
Generating Volatility Forecasts from Value at Risk Estimates
 Management Science
, 2005
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Using Bayesian Networks for Bankruptcy Prediction: Some Methodological Issues
, 2006
"... This study provides operational guidance for using naïve Bayes Bayesian network (BN) models in bankruptcy prediction. First, we suggest a heuristic method that guides the selection of bankruptcy predictors from a pool of potential variables. The method is based upon the assumption that the joint dis ..."
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This study provides operational guidance for using naïve Bayes Bayesian network (BN) models in bankruptcy prediction. First, we suggest a heuristic method that guides the selection of bankruptcy predictors from a pool of potential variables. The method is based upon the assumption that the joint distribution of the variables is multivariate normal. Variables are selected based upon correlations and partial correlations information. A naïve Bayes model is developed using the proposed heuristic method and is found to perform well based upon a tenfold analysis, for both samples with complete information and samples with incomplete information. Second, we analyze whether the number of states into which continuous variables are discretized has an impact on a naïve Bayes model performance in bankruptcy prediction. We compare the model’s performance when continuous variables are discretized into two, three, …, ten, fifteen, and twenty states. Based upon a relatively large training sample, our results show that the naïve Bayes model’s performance increases when the number of states for discretization increases from two to three, and from three to four. Surprisingly, when the number of states increases to more than four, the model’s overall performance neither increases nor decreases. It
The Equity Risk Premium in January 2007: Evidence from the Global CFO Outlook Survey
"... We analyze the results of the most recent survey of U.S. Chief Financial Officers (CFOs) which looks ahead to the first quarter of 2007 and beyond. We present expectations of the equity risk premium measured over a 10year horizon relative to a 10year U.S. Treasury bond. This multiyear survey has ..."
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We analyze the results of the most recent survey of U.S. Chief Financial Officers (CFOs) which looks ahead to the first quarter of 2007 and beyond. We present expectations of the equity risk premium measured over a 10year horizon relative to a 10year U.S. Treasury bond. This multiyear survey has been conducted every quarter from June 2000 to November 2006. Each quarter the survey also provides measures of crosssectional disagreement about the risk premium, skewness, and a measure of individual uncertainty. The individual uncertainty is deduced from the 80% confidence interval that each respondent provides for his or her risk premium assessment. We also present evidence on the determinants of the longrun risk premium. Our analysis suggests there is a positive correlation between the ex ante risk premium and real interest rates as reflected in Treasury Inflation Indexed Notes. The level of the risk premium also appears to track market volatility as reflected in the VIX index.
On ANOVA expansion and strategies for choosing the anchor point
 Applied Mathematics and Computation
"... The classic Lebesgue ANOVA expansion offers an elegant way to represent functions that depend on a highdimensional set of parameters and it often enables a substantial reduction in the evaluation cost of such functions once the ANOVA representation is constructed. Unfortunately, the construction of ..."
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The classic Lebesgue ANOVA expansion offers an elegant way to represent functions that depend on a highdimensional set of parameters and it often enables a substantial reduction in the evaluation cost of such functions once the ANOVA representation is constructed. Unfortunately, the construction of the expansion itself is expensive due to the need to evaluate highdimensional integrals. A way around this is to consider an alternative formulation, known as the anchored ANOVA expansion. This formulation requires no integrals but has an accuracy that depends sensitively on the choice of a special parameter, known as the anchor point. We present a comparative study of several strategies for the choice of this anchor point and argue that the optimal choice of this anchor point is the center point of a sparse grid quadrature. This choice comes at no cost and, as we shall show, results in a natural truncation of the ANOVA expansion. The efficiency and accuracy is illustrated through several standard benchmarks and is shown to outperform the alternatives over a range of applications.
The Equity Risk Premium amid a Global Financial Crisis
"... We analyze the history of the equity risk premium from surveys of U.S. Chief Financial Officers (CFOs) conducted every quarter from June 2000 to March 2009. The risk premium is the expected 10year S&P 500 return relative to a 10year U.S. Treasury bond yield. The last two surveys were conducted ..."
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We analyze the history of the equity risk premium from surveys of U.S. Chief Financial Officers (CFOs) conducted every quarter from June 2000 to March 2009. The risk premium is the expected 10year S&P 500 return relative to a 10year U.S. Treasury bond yield. The last two surveys were conducted during the darkest parts of a global financial crisis and our results show that the equity premium sharply increased during the crisis. The survey also provides measures of crosssectional disagreement about the risk premium, skewness, and a measure of individual uncertainty. The level of
An Approximate Dynamic Programming Framework for Modeling Global Climate Policy under DecisionDependent Uncertainty
, 2011
"... for modeling global climate policy under decisiondependent uncertainty ..."
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for modeling global climate policy under decisiondependent uncertainty
An Elicitation Procedure for the Generalized Trapezoidal Distribution with a Uniform Central Stage
"... Abstract: Recent advances in computation technology for decision/simulation and uncertainty analyses have revived interest in the the triangular distribution and its use to describe uncertainty of bounded input phenomena. The trapezoidal distribution, explicitly suggested by Pouliquen (1970) in the ..."
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Abstract: Recent advances in computation technology for decision/simulation and uncertainty analyses have revived interest in the the triangular distribution and its use to describe uncertainty of bounded input phenomena. The trapezoidal distribution, explicitly suggested by Pouliquen (1970) in the framework of risk and uncertainty analysis, is a generalization of the triangular distribution that allows for the specification of the modal value by means of a range of values rather than a single point estimate. While the trapezoidal and the triangular distributions are restricted to linear geometric forms in the successive stages of the distribution, the generalized trapezoidal (GT) distribution introduced by van Dorp and (2003) allows for a nonlinear behavior at its tails andKotz a linear incline (or decline) in the central stage. In this paper we shall develop two novel elicitation procedures for the parameters of a special case of the GT family by restricting ourselves to a uniform (horizontal) central stage in accordance with the central stage of the original trapezoidal