Maria Vassalou
Economic Policy Institute
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Publication
Featured researches published by Maria Vassalou.
Journal of Financial Economics | 2000
Jim Kyung-Soo Liew; Maria Vassalou
We examine the extent to which the profitability of the HML, SMB, and WML trading strategies can be linked to future GDP growth. Using a large cross-section of securities from ten developed markets, we find that the HML and SMB portfolios contain significant information about future GDP growth. The predictive ability of these strategies is to a large degree independent of any information contained in the domestic market factor, which is known to be a leading indicator of economic growth. Even in the presence of popular business cycle variables, HML and SMB retain their ability to predict future economic growth in some of the countries examined. Our results support a risk-based explanation for the performance of the HML and SMB trading strategies. Little evidence was found to support such an explanation in the case of the WML trading strategy.
Journal of Financial Economics | 2003
Maria Vassalou
A model that includes a factor that captures news related to future Gross Domestic Product (GDP) growth along with the market factor can explain the cross-section of equity returns about as well as the Fama-French model can. Furthermore, the Fama-French factors HML and SMB appear to contain mainly news related to future GDP growth. When news related to future GDP growth is present in the asset-pricing model, HML and SMB lose their ability to explain the cross-section.
The Journal of Business | 2006
Qing Li; Maria Vassalou; Yuhang Xing
We examine the importance of the information contained in sector investment growth rates for explaining the cross section of equity returns. We propose an empirical specification that outperforms the capital asset pricing model and Cochranes (1996) model and performs at least as well as the Fama-French (1993) and Lettau-Ludvigson (2001) models in explaining the 25 Fama-French size-sorted and book-to-market-sorted portfolios, as well as other sets of test assets.
Journal of Economic Dynamics and Control | 2002
Robert J. Hodrick; Maria Vassalou
This Paper examines characterizations of the dynamics for first and second moments of the one-month interest rate, the 12-month excess bond return and exchange rates. The countries considered are the US, Germany, Japan and the UK. Our tests are based on the implications of multi-country versions of the Cox, Ingersoll and Ross (1985) class of term structure models. Multi-country models are in several cases better able to explain the dynamics of one-month interest rates and the 12-month excess bond returns than one-country models. Furthermore, in some cases, they can also explain the dynamics of the exchange rates better than two-country models. Multi-country models are particularly useful for explaining the second moment of the one-month US interest rate, the second moments of the 12-month excess bond returns in US, Germany and Japan, as well as the first moment of the rate of appreciation of the Deutsche mark relative to the US dollar. In addition to results based on asymptotic distributions, we also provide inference using the small-sample distributions of test statistics.
Economic Theory | 2006
Lars Tyge Nielsen; Maria Vassalou
We show that if the intercept and slope of the instantaneous capital market line are deterministic, then investors will not hold any hedge portfolios in the sense of Merton [9, 11]. They will choose portfolios that plot on the capital market line, and they will slide up and down the capital market line over time as their wealth and risk tolerance change. This result allows us to aggregate over investors and derive a single factor CAPM where the first and second moments of security returns may change stochastically over time and markets are potentially incomplete. Copyright Springer-Verlag Berlin/Heidelberg 2006
Archive | 2000
Maria Vassalou
This paper provides an economic interpretation for the book-to-market (HML) and size (SMB) factors in the Fama-French model using data from ten developed countries. We show that part of the information in these factors that is priced in equity returns, refers to news about future GDP growth. However, a model that includes only the market factor and news about future GDP growth cannot explain asset returns as well as the Fama-French model does. Our tests reveal that HML and SMB also contain important information about the current default premium. A model that includes the information in HML and SMB about the default premium and news about future GDP growth, together with the market factor, can successfully replicate the performance of the Fama-French model in the US. Our results suggest that HML and SMB summarize information about two state variables: the current default premium and news about future GDP growth.
Archive | 2004
Maria Vassalou; Kodjo Apedjinou
We define corporate innovation (CI) as the proportion of a firms change in gross profit margin not explained by the change in the capital and labor it utilizes. We show that CI contains important information about expected equity returns. This information is very different from information contained in earnings surprises variables. It is however strongly related to the information contained in past returns, and can explain much of the performance of price momentum strategies.
Social Science Research Network | 2002
Maria Vassalou
A model that includes a factor that captures news related to future Gross Domestic Product (GDP) growth along with the market factor, can explain the cross-section of equity returns about as well as the Fama-French model can. Furthermore, the Fama-French factors HML and SMB appear to contain mainly news related to future GDP growth. When news related to future GDP growth is present in the asset-pricing model, HML and SMB lose much of their ability to explain the cross-section.
Social Science Research Network | 1999
Robert J. Hodrick; Maria Vassalou
This paper examines characterizations of exchange rate and short-term interest rate dynamics, based on the implications of multi-country versions of the Cox, Ingersoll, and Ross (1985) class of term structure models. The countries considered are the US, Germany, Japan, and the UK. Our tests reveal that multi-country models are, in some cases, better able to explain the dynamics of exchange rates and interest rates than two-country and single-country models respectively. This is particularly true for the Japanese interest rate as well as the rate of appreciation of the Deutsche mark relative to the US dollar. Our inference is conducted using the small-sample distributions of test statistics, in addition to their asymptotic distributions.
Journal of International Money and Finance | 2000
Maria Vassalou