#2006-047A "Does Aggregate Relative Risk Aversion Change Countercyclically over Time? Evidence from the Stock Market"
by Hui Guo, Zijun Wang, and Jian Yang
August 2006

Using a semiparametric estimation technique, we show that the risk-return tradeoff and the Sharpe ratio of the stock market increases monotonically with the consumption wealth ratio (CAY) across time. More...

#2006-036A "The Relation between Time-Series and Cross-Sectional Effects of Idiosyncratic Variance on Stock Returns in G7 Countries"
by Hui Guo, and Robert Savickas
May 2006

This paper suggests that CAPM-based idiosyncratic variance (IV) correlates negatively with future stock returns because it is a proxy for loadings on discount-rate shocks in Campbell’s (1993) ICAPM. The ICAPM also implies that there are important links between the time-series and cross-sectional IV effects. More...

#2006-019B "Understanding Stock Return Predictability"
by Hui Guo, and Robert Savickas
March 2006
Revised October 2006

Over the period 1927:Q1 to 2005:Q4, the average CAPM-based idiosyncratic variance (IV) and stock market variance jointly forecast stock market returns. More...

#2006-007A "Equity Market Volatility and Expected Risk Premium"
by Long Chen, Hui Guo, and Lu Zhang
January 2006

This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and does not rely critically on either realized equity returns or instrumental variables. More...

#2006-006A "Investigating the Intertemporal Risk-Return Relation in International Stock Markets with the Component GARCH Model"
by Hui Guo, and Christopher J. Neely
January 2006

We revisit the risk-return relation using the component GARCH model and international daily MSCI stock market data. In contrast with the previous evidence obtained from weekly and monthly data, daily data show that the relation is positive in almost all markets and often statistically significant. Likelihood ratio tests reject the standard GARCH model in favor of the component GARCH model, which strengthens the evidence for a positive risk-return tradeoff. More...

PUBLISHED: Economics Letters, May 2008, 99(2), pp. 371-74

#2005-073B "Market Timing with Aggregate and Idiosyncratic Stock Volatilities"
by Hui Guo, and Jason Higbee
December 2005
Revised 2006

Guo and Savickas [2005] show that aggregate stock market volatility and average idiosyncratic stock volatility jointly forecast stock returns. In this paper, we quantify the economic significance of their results from the perspective of a portfolio manager. That is, we evaluate the performance, e.g., the Sharpe ratio and Jensen's alpha, of a meanvariance manager who tries to time the market based on those two variables. More...

FORTHCOMING: Journal of Portfolio Management

#2005-026C "Is the Value Premium a Proxy for Time-Varying Investment Opportunities: Some Time Series Evidence"
by Hui Guo, Robert Savickas, Zijun Wang, and Jian Yang
April 2005
Revised October 2006

We uncover a positive, empirical risk-return tradeoff in the stock market after controlling for the covariance of stock market returns with the value premium. More...

FORTHCOMING: Journal of Financial and Quantitative Analysis

#2005-025B "Idiosyncratic Volatility, Economic Fundamentals, and Foreign Exchange Rates"
by Hui Guo, and Robert Savickas
April 2005
Revised May 2006

This paper shows that a relatively high level of average U.S. industry- or firm-level idiosyncratic stock volatility is usually associated with a future appreciation in the U.S. dollar. For most foreign currencies, the relation is statistically significant in both in sample and out-of-sample tests, even after we use a bootstrap procedure to explicitly account for data mining. More...

#2004-029F "Foreign Exchange Volatility is Priced in Equities"
by Hui Guo, Christopher J. Neely, and Jason Higbee
November 2004
Revised June 2007

This paper finds that standard asset pricing models fail to explain the significantly negative delta hedging errors from buying options on foreign exchange futures. More...

FORTHCOMING: Financial Management

#2004-028B "International Transmission of Inflation among G-7 Countries: A Data-Determined VAR Analysis"
by Jian Yang, Hui Guo, and Zijun Wang
November 2004
Revised October 2005

We investigate the international transmission of inflation among G-7 countries using data-determined vector autoregression analysis, as advocated by Swanson and Granger (1997). Over the period 1973 to 2003, we find that unexpected changes in U.S. inflation have large effects on inflation in other countries, although they are not always the dominant international factor. More...

PUBLISHED: Journal of Banking and Finance, October 2006, 30(10), pp. 2681-700