Gonzalo Rubio - Academia.edu (original) (raw)

Papers by Gonzalo Rubio

This paper studies the determinants of the variance risk premium and discusses the hedging possib... more This paper studies the determinants of the variance risk premium and discusses the hedging possibilities offered by variance swaps. We start by showing that the variance risk premium responds to changes in higher order moments of the distribution of market returns. But the uncertainty that determines the variance risk premium – the fear by investors to deviations from normality in returns – is also strongly related to a variety of macroeconomic and financial risks associated with default, employment growth, convailable online 19 December 2013 eywords: ariance risk premium on-normality conomic risks sumption growth, stock market and market illiquidity risks. We conclude that the variance risk premium reflects the market willingness to pay for hedging against these financial and macroeconomic sources of risk. An out-of-sample asset allocation exercise shows that the inclusion of the variance swap reduces the modified value-at-risk with respect to a portfolio holding exclusively the eq...

Spanish Economic Review, 2008

The main objective of this paper is to analyse the value of information contained in prices of op... more The main objective of this paper is to analyse the value of information contained in prices of options on the IBEX 35 index at the Spanish Stock Exchange Market. The forward looking information is extracted using implied risk-neutral density functions estimated by a mixture of two-lognormals and several alternative risk-adjustments: the power, exponential and habit-inspired based stochastic discount factors. Moreover, by allowing additional flexibility in the shape of the stochastic discount factor, two other ad hoc time-varying risk aversion adjustments are also employed. Our results show that, between October 1996 and March 2000, we can reject the hypothesis that the risk-neutral densities provide accurate predictions of the distributions of future realisations of the IBEX 35 index at four-and eight-week horizons. When forecasting through risk-adjusted densities the performance of this period is statistically improved and we no longer reject that hypothesis. Somehow surprisingly, all risk-adjusted densities generate similar forecasting statistics. Finally, from October 1996 to December 2004, the ex-ante risk premium perceived by investors and that are embedded in option prices is between 12 and 18 percent higher than the premium required to compensate the same investors for the realised volatility in stock market returns.

Journal of Macroeconomics, 2013

The elasticity of intertemporal substitution (EIS) is one of the key parameters in the Economics ... more The elasticity of intertemporal substitution (EIS) is one of the key parameters in the Economics and Finance literature. It is usually estimated by means of the consumer's Euler Equation using an instrumental variable approach, and the estimates are usually zero or close to zero. Nevertheless, such attempts present two major problems: first, the use of weak instruments, and second, the absence of a rate of return that is representative of the agent's asset portfolio. The latter has been addressed by using the return of a synthetic mutual fund (SMF), which is a weighted combination of the returns of all assets held by the average household. The use of SMF returns led to EIS estimates of about 0.2 for the US economy. In this paper, we first investigate whether the EIS estimates using the SMF returns for the US suffer from the weak instrument problem. Next, we conduct robustness analyses using different estimators and instrument sets. Our findings show that estimates using SMF returns are plagued by weak instruments, but in some cases partially robust estimators were able to deliver a positive and statistically significant EIS estimate. Furthermore, we found that the Treasury Bill return does not suffer from weak instruments, but the EIS is not precisely estimated and seems to be close to zero.

MEFF-UAM, 2000

Short-Term Options with Stochastic Volatility: Estimation and Empirical Performance Gabriele Fior... more Short-Term Options with Stochastic Volatility: Estimation and Empirical Performance Gabriele Fiorentini, Ángel León and Gonzalo Rubio1 Abstract This paper examines the stochastic volatility model suggested by Heston (1993). We employ a time-series approach to estimate the ...

SERIEs

Macro-finance asset pricing models provide a rationale for connectedness dynamics between equity ... more Macro-finance asset pricing models provide a rationale for connectedness dynamics between equity and Treasury risk-neutral volatilities. In this paper, we study the total and directional connectedness, in the sense of spillover effects, between risk-neutral volatilities from the equity and Treasury markets. In addition, we analyze the economic and monetary drivers of connectedness dynamics. Most of the time, but especially during bad economic times, we find significant net spillovers from Treasury to equity risk-neutral volatility. The spillover channel between risk-neutral volatilities arises mainly through the government fixed income market.

Journal of Risk and Financial Management, 2022

Institutional investors often have to decide which strategy to use across international business ... more Institutional investors often have to decide which strategy to use across international business cycles. This is especially important during economic and financial crises. The exogenous nature of the outbreak of the dramatic COVID-19 crisis represents a unique opportunity to understand the performance of risk factors during severe economic times across international stock markets. Even more important is to analyze how these factors behave across very different economic crises, such as the COVID-19 pandemic and the Great Recession. Although, the overall results show that the momentum and quality factors are the winners, with the value factor as the loser, this research also reports different responses of factors across crises and countries. The size, value, and defensive factors tend to perform worse during the health crisis relative to the Great Recession, while the momentum factor shows a poor performance during the financial crisis, but a positive one during the outbreak of COVID-...

Quantitative Finance, 2019

This paper analyzes the factor structure and cross-sectional variability of a set of expected exc... more This paper analyzes the factor structure and cross-sectional variability of a set of expected excess returns extracted from option prices and a non-parametric and out-of-sample stochastic discount factor. We argue that the existing potential segmentation between the equity and option markets makes it advisable to avoid using only option prices to extract expected equity risk premia. This set of expected risk premia significantly forecasts future realized returns, and the first two principal components explain 94.1% of the variability of expected returns. A multi-factor model with the market, quality, funding illiquidity, the default premium and the market-wide variance risk premium as factors significantly explains the cross-sectional variability of expected excess returns. The (asymptotically) different from zero adjusted cross-sectional R-squared statistic is 83.6%.

This paper employs a MIDAS decomposition of real activity betas into a highand low frequency comp... more This paper employs a MIDAS decomposition of real activity betas into a highand low frequency components to study how uncertainty and risk aversion affects the relation between investment-style factor returns and the real economy. For most investmentstyle factors, including the stock market excess return, there is a positive and significant relation between uncertainty and risk aversion and the beta of returns with real activity. Moreover, these effects start increasing at the beginning of recessions, with stronger effects occurring at the end of recessions. However, exactly the opposite effects are found for the quality/profitability-based factors.

Spanish Journal of Finance and Accounting / Revista Española de Financiación y Contabilidad, 2019

ABSTRACT This paper shows that the quality minus junk (QMJ) factor and quality-sorted portfolios ... more ABSTRACT This paper shows that the quality minus junk (QMJ) factor and quality-sorted portfolios contain information about funding liquidity crisis. There is a strong and positive relation between the behavior of the QMJ factor and the intensity of funding liquidity crises. This is the case even if we control for the profitability factor, the St. Louis Fed Financial Stress Index, and the market portfolio return. However, we do not find a similar significant relation with respect to market-wide illiquidity. Moreover, the quality-based volatility bound is a strong predictor of the probability of future funding liquidity recessions.

Journal of Forecasting, 2019

This paper employs equity (VIX) and Treasury (MOVE) risk-neutral volatilities to assess their rel... more This paper employs equity (VIX) and Treasury (MOVE) risk-neutral volatilities to assess their relative forecasting performance with respect to future real activity, stock and Treasury excess returns, and aggregate risk factors. The in-sample evidence suggests that the square of VIX tends to dominate the square of MOVE. Out-of-sample predictive analysis, performed as a horse race between equity and Treasury risk-neutral volatilities, shows that, contrary to earlier results, the square of VIX and MOVE tend to complement each other.

International Review of Economics Education, 2016

This paper studies the relation between teaching quality and research productivity using a detail... more This paper studies the relation between teaching quality and research productivity using a detailed database for students in higher education. In order to measure teaching quality, we employ a version of the value-added methodology which uses future performance of students to make inferences about the current teaching quality of their professors. We report a mild but positive and significant relation between publications on top journals and teaching quality. To all practical effects, this finding does not seem to be contaminated by the potential negotiating power of professors with high levels of top publications strategically choosing the best-performing groups. Additionally, we report evidence that the random assignment of students into class groups is reasonably satisfied. Finally, we argue that teaching effectiveness measures based on anonymous student evaluations are suspicious and debatable.

Given the evidence provided by Longstaff (1995), and Pena, Rubio and Serna (1999) a serious candi... more Given the evidence provided by Longstaff (1995), and Pena, Rubio and Serna (1999) a serious candidate to explain the pronounced pattern of volatility estimates across exercise prices might be related to liquidity costs. Using all calls and puts transacted between 16:00 and 16:45 on the Spanish IBEX-35 index futures from January 1994 to October 1998 we extend previous papers to study the influence of liquidity costs, as proxied by the relative bid-ask spread, on the pricing of options. Surprisingly, alternative parametric option pricing models incorporating the bid-ask spread seem to perform poorly relative to Black-Scholes.

This paper proposes a GARCH-type model allowing for time-varying volatility, skewness and kurtosi... more This paper proposes a GARCH-type model allowing for time-varying volatility, skewness and kurtosis. The model is estimated assuming a Gram-Charlier series expansion of the normal density function for the error term, which is easier to estimate than the non-central t distribution proposed by Harvey and Siddique (1999). Moreover, this approach accounts for time-varying skewness and kurtosis while the approach by Harvey and Siddique (1999) only accounts for nonnormal skewness. We apply this method to daily returns of a variety of stock indices and exchange rates. Our results indicate a significant presence of conditional skewness and kurtosis. It is also found that specifications allowing for time-varying skewness and kurtosis outperform specifications with constant third and fourth moments.

Este trabajo analiza las consecuencias que el cambio en el nivel de transparencia de un mercado f... more Este trabajo analiza las consecuencias que el cambio en el nivel de transparencia de un mercado financiero tiene sobre el proceso de aprendizaje de los inversores. Para ello analizamos el cambio de nivel de transparencia ex-ante que se produjo en la preapertura de la Bolsa de Madrid el 1 de junio de 2000 con el fin de armonizar las reglas

Immunology, 1992

CD26 antigen distribution among lymphoid cells and its participation in the process of lymphocyte... more CD26 antigen distribution among lymphoid cells and its participation in the process of lymphocyte activation and proliferation has been widely documented. However, the molecular and biochemical mechanisms coupled to the CD26 molecule are not yet known. With different monoclonal antibodies (mAb) we have detected that approximately 56% of CD4+ and 35% of CD8+ cells from peripheral blood lymphocytes express CD26 and the expression of this antigen is required for antigen- but not for mitogen-induced proliferation unless exogenous interleukin-2 (IL-2) is added to the culture. The stimulation of nylon wool-separated T cells and T-cell clones by the anti-CD26 mAb, 134-2C2, induced tyrosine phosphorylation on a subset of proteins of 50,000, 46,000, 26,000, 24,000 and 21,000 MW. This pattern of phosphorylation was not affected by the presence of 12-myristate 13-acetate (PMA), although this cofactor is required for CD26-mediated IL-2 mRNA expression and T-cell proliferation. When a specific t...

The Spanish Review of Financial Economics, 2011

This paper proposes an ICAPM in which the risk premium embedded in variance swaps is the factor m... more This paper proposes an ICAPM in which the risk premium embedded in variance swaps is the factor mimicking portfolio for hedging exposure to changes in future investment conditions. Recent empirical evidence shows that the fears by investors to deviations from Normality in the distribution of returns are able to explain time-varying financial and macroeconomic risks in addition to being a determinant of the variance risk premium. Moreover, variance swaps hedges unfavorable changes in the stochastic investment opportunity set, and is not a redundant asset because significantly expands the efficient mean-variance frontier. Thence, we should expect the variance swap risk premium to be priced in the market. We report relatively favorable evidence on the incremental pricing information associated with the variance risk premium, particularly at shorter horizons.

SSRN Electronic Journal, 2007

This paper analyzes empirically the volatility of consumption-based stochastic discount factors a... more This paper analyzes empirically the volatility of consumption-based stochastic discount factors as a measure of implicit economic fears by studying its relationship with future economic and stock market cycles. Time-varying economic fears seem to be well captured by the volatility of stochastic discount factors. In particular, the volatility of recursive utility-based stochastic discount factor with contemporaneous consumption growth explains between 9 and 34 percent of future changes in industrial production at short and long horizons respectively. They also explain ex-ante uncertainty and risk aversion. However, future stock market cycles are better explained by a similar stochastic discount factor with long-run consumption growth.

SSRN Electronic Journal, 2011

This paper shows how to extract future real activity information from optimallycombined size-sort... more This paper shows how to extract future real activity information from optimallycombined size-sorted portfolios. In particular, we analyze the capacity of the size-based model-free Hansen-Jagannathan volatility bound to predict future economic growth. We find that the volatility bound is a powerful in-sample and out-of-sample predictor of future industrial production growth. The asymmetric sensitivities of small and large companies through the business cycle are behind our findings. Alternative volatility bounds estimated with sorting procedures based on book-to-market, momentum, or dividend yield do not either show these asymmetric sensitivities or forecasting capacity of output growth.

SSRN Electronic Journal, 2014

This paper analyzes the relationship between the volatility of corporate bond returns and standar... more This paper analyzes the relationship between the volatility of corporate bond returns and standard financial and macroeconomic indicators reflecting the state of the economy. We employ the GARCH-MIDAS multiplicative two-component model of volatility that distinguishes the short-term dynamics from the long-run component of volatility. Both the in-sample and out-of-sample analysis show that recognizing the existence of a stochastic low-frequency component captured by macroeconomic and financial indicators may improve the fit of the model to actual bond return data, relative to the constant long-run component embedded in a typical GARCH model.