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See detailIs This Time Really Different? Flight-to-Safety and the COVID-19 Crisis
Löwen, Celina; Kchouri, Bilal UL; Lehnert, Thorsten UL

in PLoS ONE (2021), 16(5),

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See detailTHIS TIME IS REALLY DIFFERENT: FLIGHT-TO-SAFETY AND THE COVID-19 CRISIS
Löwen, Celina; Kchouri, Bilal UL; Lehnert, Thorsten UL

E-print/Working paper (2020)

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See detailA Note on Stein’s Overreaction Puzzle
Lin, Yuehao; Lehnert, Thorsten UL

in Decisions in Economics and Finance (2020), 43(1), 269-276

Recently, Christoffersen et al. (2013) argue that the overreaction puzzle of Stein (1989) can be explained by a variance-dependent pricing kernel. In this note, we challenge this view. Our theoretical ... [more ▼]

Recently, Christoffersen et al. (2013) argue that the overreaction puzzle of Stein (1989) can be explained by a variance-dependent pricing kernel. In this note, we challenge this view. Our theoretical results are in line with their argument that the variance under risk-neutral measure is more persistent than the variance under physical measure due to a negative variance risk premium. But our results do not support their argument that the more persistent variance is able to qualitatively explain Stein’s findings. We show theoretically that the persistence of the volatility cannot amplify the movements of long-term variance to short-term fluctuations in variance, and, therefore, conclude that Stein’s overreaction puzzle is still unsolved. [less ▲]

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See detailFear and Stock Price Bubbles
Lehnert, Thorsten UL

in PLoS ONE (2020), 15 (5)(e0233024), 1-11

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See detailThe Lehman Sisters Claim
Lehnert, Thorsten UL

E-print/Working paper (2020)

I evaluate Christine Lagarde´s claim that more female leaders can be associated with more prudence, and less of the risky decision-making that had provoked the crisis. Indeed, the proportion of women who ... [more ▼]

I evaluate Christine Lagarde´s claim that more female leaders can be associated with more prudence, and less of the risky decision-making that had provoked the crisis. Indeed, the proportion of women who are employed in decision-making and management roles in governments, large enterprises and institutions varies substantially across European countries and is oftentimes below 30%. Research suggests that in addition to biological differences, men and women show morphological dissimilarities in specific brain regions, which explain the observed differences in behavior. As a result, female decision makers tend to be more risk averse, better suited to carefully analyze a problem, superior in multitasking and better in creating solutions that work for a group. Not surprisingly, firms with more female decision makers tend to outperform their peers in terms of productivity, profitability and stock performance while taking fewer risks. In this paper, I aim to explore the effect of female decision making on aggregate equity returns. Relying on an equilibrium asset-pricing model in an economy under jump diffusion, I decompose the moments of the returns of European stock market indices into a diffusive (systematic) risk and an (idiosyncratic) extreme event risk part. For a balanced panel of European countries, I find empirical evidence for a Lehman sisters’ effect: female decision making is an important determinant of (idiosyncratic) extreme event risk. As a result, stock markets in countries with more female decision makers are characterized by higher risk aversion, lower volatility and more positive return asymmetry, primarily driven by extreme event risk, e.g. the lower frequency of negative jumps. Results are robust to the inclusion of various controls for other country- or market-specific characteristics. [less ▲]

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See detailRetail Investors' Flight-From-Safety and the Skewness Risk Premium
Lehnert, Thorsten UL

E-print/Working paper (2020)

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See detailWhy is the Market Skewness-Return Relationship Negative?
Lehnert, Thorsten UL

Scientific Conference (2020, January 23)

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See detailModel Uncertainty and Pricing Performance in Option Valuation
Bams, Dennis; Blanchard, Gildas; Lehnert, Thorsten UL

in The Journal of Derivatives (2020), 27(3), 31-49

The objective of this paper is to evaluate option pricing model performance at the cross sectional level. For this purpose, we propose a statistical framework, in which we in particular account for the ... [more ▼]

The objective of this paper is to evaluate option pricing model performance at the cross sectional level. For this purpose, we propose a statistical framework, in which we in particular account for the uncertainty associated with the reported pricing performance. Instead of a single figure, we determine an entire probability distribution function for the loss function that is used to measure option pricing model performance. This methodology enables us to visualize the effect of parameter uncertainty on the reported pricing performance. Using a data driven approach, we confirm previous evidence that standard volatility models with clustering and leverage effects are sufficient for the option pricing purpose. In addition, we demonstrate that there is short-term persistence but long-term heterogeneity in cross-sectional option pricing information. This finding has two important implications. First, it justifies the practitioner’s routine to refrain from time series approaches, and instead estimate option pricing models on a cross-section by cross-section basis. Second, the long term heterogeneity in option prices pinpoints the importance of measuring, comparing and testing option pricing model for each cross-section separately. To our knowledge no statistical testing framework has been applied to a single cross-section of option prices before. We propose a methodology that addresses this need. The proposed framework can be applied to a broad set of models and data. In the empirical part of the paper, we show by means of example, an application that uses a discrete time volatility model on S&P 500 index options. [less ▲]

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See detailIslamic Banking and Economic Growth
Kchouri, Bilal; Lehnert, Thorsten UL

in Rafay, Abdul (Ed.) Handbook of Research on Theory and Practice of Global Islamic Finance (2020)

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See detailWhy is the Market Skewness-Return Relationship Negative?
Lehnert, Thorsten UL

Scientific Conference (2019, December 13)

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See detailTHE MARKET SKEWNESS-RETURN RELATIONSHIP
Lehnert, Thorsten UL

Presentation (2019, October 29)

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See detailTHE MARKET SKEWNESS-RETURN RELATIONSHIP, Plenary Talk
Lehnert, Thorsten UL

Scientific Conference (2019, September 25)

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See detailFear and Euphoria
Lehnert, Thorsten UL

Scientific Conference (2019, August 28)

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See detailWHY IS THE MARKET SKEWNESS-RETURN RELATIONSHIP NEGATIVE?
Lehnert, Thorsten UL

Scientific Conference (2019, July 09)

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See detailWHY IS THE MARKET SKEWNESS-RETURN RELATIONSHIP NEGATIVE?
Lehnert, Thorsten UL

E-print/Working paper (2019)

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See detailWHY IS THE MARKET SKEWNESS-RETURN RELATIONSHIP NEGATIVE?
Lehnert, Thorsten UL

Scientific Conference (2019, May 30)

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See detailSkewness Risk Premium: Theory and Empirical Evidence
Lin, Yuehao; Lehnert, Thorsten UL; Wolff, Christian UL

in International Review of Financial Analysis (2019), 63

Using an equilibrium asset and option pricing model in a simple economy under jump diffusion, we show theoretically that the aggregated excess market returns can be predicted by the skewness risk premium ... [more ▼]

Using an equilibrium asset and option pricing model in a simple economy under jump diffusion, we show theoretically that the aggregated excess market returns can be predicted by the skewness risk premium, which is constructed to be the difference between the physical and the risk-neutral skewness. In an empirical application of the model using more than 20 years of data on S&P500 index options, we find that, in line with theory, risk-averse investors demand risk-compensation for holding stocks when the market skewness risk premium is high. However, when we characterize periods of high and low risk aversion, we show that in line with theory, the relationship only holds when risk aversion is high. In periods of low risk aversion, investors demand lower risk compensation, thus substantially weakening the skewness-risk-premium-return trade off. [less ▲]

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See detailEnergy Systemic Risk
Decet, Romain; Lehnert, Thorsten UL

Scientific Conference (2019, April 06)

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See detailAsset Pricing Implications of Good Governance
Lehnert, Thorsten UL

in PLoS ONE (2019), 14 (4)(e0214930), 1-14

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