Northwestern University, Kellogg School of Management

ian.dewbecker@gmail.com

CV

## The price of variance risk With Stefano Giglio, Anh Le, and Marius Rodriguez.

**Abstract:**

## Long-run risk is the worst-case scenario: ambiguity aversion and non-parametric estimation of the endowment process With Rhys Bidder. Slides

**Abstract:**

## Asset pricing in the frequency domain: theory and empirics With Stefano Giglio. Slides

## A Model of Time-Varying Risk Premia with Habits and Production.

I combine Epstein–Zin preferences with habit formation. With production, the model generates a large and volatile equity premium.
## How risky is consumption in the long-run? Benchmark estimates from a novel unbiased and efficient estimator. Slides

The only significantly priced risk in the variance market is transitory realized variance. News about future variance is unpriced, counter to most models.

The average investor in the variance swap market is indifferent to news about future variance at horizons ranging from 1 month to 14 years. It is only purely transitory and unexpected realized variance that is priced. These results present a challenge to most structural models of the variance risk premium, such as the intertemporal CAPM, models with Epstein–Zin preferences, macro models where volatility affects investment decisions, and models where institutional investors have value-at-risk constraints. However, we show that a model with rare disasters and a time-varying exposure of equities to the disaster can explain the stylized facts, suggesting that investors use the variance swap market to hedge against disasters.

If an agent with Epstein–Zin preferences does not know what the true ARMA model for consumption growth is, the worst one she could get, given a likelihood constraint, it the long-run risk model.

We study an agent who is unsure of consumption dynamics. She estimates her consumption process non-parametrically to place minimal restrictions on dynamics. We show that the worst-case model that she uses for pricing, given a penalty on deviations from the point estimate, is similar to a long-run risk model. This result cannot in general be matched in a fixed model with only parameter uncertainty. With a single parameter determining risk preferences, the model generates high and volatile risk premia and matches R²s from return forecasting regressions, even though risk aversion is below 5 and the worst-case dynamics are nearly indistinguishable from the true model.

The price of risk for a shock depends on its dynamic effects on the economy. We derive the relationship between risk prices and dynamic impacts in a range of theoretical models and also estimate it empirically.

I develop a new long-run variance estimator and use it to estimate the long-run variance of consumption growth. Point estimates are lower than standard long-run risks calibrations, but the more conservative calibrations cannot be ruled out. The estimates are useful more generally for calibrating models with recursive preferences.

__Bond Pricing with a Time-Varying Price of Risk in an Estimated Medium-Scale Bayesian DSGE Model__ **Forthcoming, ***Journal of Money, Credit, and Banking.*

A New-Keynesian model with time-varying risk aversion can fit bond yields nearly as well as an unrestricted three-factor model. Including bond prices in the estimation makes investment technology shocks look much less important.
## Unresolved Issues in the Rise of American Inequality (with R.J. Gordon). *Brookings Papers on Economic Activity* 38(2), Fall 2007.

## Where Did the Productivity Go? Inflation Dynamics and the Distribution of Income (with R.J. Gordon). *Brookings Papers on Economic Activity* 36(2), 2005, pp. 67–127. Slides

# Older Unpublished Papers:

## Investment and the Cost of Capital in the Cross-Section: The Term Spread Predicts the Duration of Investment Draft of 11.2012.

## Essentially Affine Approximations for Economic Models

First-order approximations related to perturbation that allow for time-varying risk aversion and volatility. Useful for macro-finance models.
## The Role of Labor Market Changes in the Post-1995 Slowdown in European Productivity Growth (with R.J. Gordon). Draft of 12.2007.

- Extended (and better!) NBER Working Paper version: Controversies about the Rise of American Inequality: A Survey
**Vox EU**column summarizing this paper- Translated into French by Gerard Cornilleau: "Questions Sans Réponse sur L'Augmentation des Inégalités aux États-Unis".
*La Revue de l'OFCE a 25 ans*No. 102, November, 2007.

When long-term interest rates are high relative to short-term rates, physical investment shifts towards short-term projects.

Replication files

- Slides
**Vox EU**column summarizing this paper- Titles of earlier drafts:

*"Why Did Europe's Productivity Catch-up Sputter Out? A Tale of Tigers and Tortoises"*

"The Slowdown in European Productivity Growth: A Tale of Tigers, Tortoises and Textbook Labor Economics"

## Asset pricing in the frequency domain: Theory and empirics (VoxEU.org column with Stefano Giglio). 10.20.2013

## How Much Sunlight Does it Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation in America *CESifo Economic Studies* 55(3-4), 2009, pp. 434-457

## The rise in American inequality (with R.J. Gordon). 6.19.2008

## Europe’s employment growth revived after 1995 while productivity growth slowed: Is it a coincidence? (with R.J. Gordon). 4.15.2008

**Summary:**

Stabilisation policy should focus on the frequencies consumers care most about. This column presents evidence from stock-market returns suggesting that consumers are willing to pay the most to avoid – and are therefore most concerned about – fluctuations that last tens or hundreds of years. Modern macroeconomic theory tends to view the role of monetary policy as smoothing out inflation and unemployment over the business cycle. The authors’ findings suggest that resources would be better spent on policies that smooth out longer-run fluctuations.

**Abstract:**

I review the history of executive compensation disclosure and other government policies affecting CEO pay. In so doing, I also review the literature on the effects of these policies. Disclosure has increased nearly uniformly since 1933. A number of other regulations, including special taxes on CEO pay and rules regarding votes on some pay packages have also been introduced, particularly in the last 20 years. However, there is little solid evidence that any of these policies have had any substantial impact on pay. We can conclude that policy changes have helped drive the move towards more use of stock options, but there is no conclusive evidence on how policy has affected the level or composition of pay otherwise. I also review evidence from overseas on "Say on Pay," recently proposed in the US, which would allow nonbinding shareholder votes on CEO compensation. The experiences of other countries have been positive, with tighter linkages between pay and performance and improved communication with investors. Mandatory say on pay would be beneficial in the US.

**Summary:**

Only the top 10% of US earners have seen their incomes grow faster than productivity since 1966. Part of the top-earner income growth is driven by market forces (superstar economics); the only feasible pro-equality policy here is more progressive taxation. For top corporate executives, however, non-market forces (CEO-Board complicity in pay setting) are important, so other policies are warranted. Increased disclosure and improved corporate governance would distribute economic gains more evenly across society and boost firms’ value.

**Summary:**

Europe’s jobs outlook has brightened over the past decade. Recent research suggests that about half the rise in job creation is due to labour market reforms, but much of the rest is due to changing social norms concerning female and immigrant labour force participation. But what’s good for European job creation seems to be bad for labour productivity growth – a trade-off that European policymakers must be willing to acknowledge and address.