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Dr Kevin Aretz

Formerly at Lancaster University

Kevin Aretz

Research Grants

"On Cross-Sectional Variation in the Ability of Structural Models to Forecast Bankruptcy" (INQUIRE Research Grant 2008-01; £10,000; joint with Ulf Bruggemann).

"The Relation between Expected Equity Returns and Default Risk: Theory and Evidence" (Lancaster University Small Grant Scheme; £4,000).

Qualifications

Masters in Finance (Maastricht University), Ph.D. in Finance (Lancaster University). 

Research Interests

My research interests are in:

(1) ASSET PRICING (empirical/theoretical)

This work focuses on rational explanations for pricing anomalies. For example,

In: "Macroeconomic Risks and Characteristic-Factor Models," (joint with Sohnke Bartram and Peter Pope, forthcoming in the Journal of Banking and Finance; impact factor=0.997), we show that the pricing ability of factors based on size and book-to-market can partially be explained by these factors' exposures to fundmental macroeconomic risks.

In: "Omitted Debt Risk, Financial Distress and the Cross-Section of Expected Equity Returns" (joint with Mark Shackleton, Lancaster University WPS), we show that, although there are a priori reasons to believe that the omission of debt from the market portfolio proxy in CAPM tests can explain the model's failure, a closer look and a calibration exercise reveal that these arguments are weak at best.

In: "The Relation Between Expected Equity Returns and Default Risk" (Lancaster University WPS), I show that, in a representative agent model, there is not necessarily a monotone relation between default risk and the expected equity return.

(2) FORECASTING (empirical/theoretical)

This work focuses on rational forecasts under non-MSE loss functions and non-normal variables to forecast. For example, we show that heterogeneous asymmetric loss functions can rationalize the expected S&P 500 returns obtained from surveys. We also show that, under a quartic loss function, the optimal combination of forecasts and the optimal bias can differ markedly from those under MSE loss and normality.

"Spread vs. Professional Forecasters as Predictors of Future Output Change" (joint with David Peel, forthcoming in the Journal of Forecasting; impact factor=0.508).

"Asymmetric Loss Functions and the Rationality of Expected Equity Returns" (joint with Sohnke Bartram and Peter Pope, forthcoming in the International Journal of Forecasting; impact factor=1.685).

(3) BANKRUPTCY

In this work, we analyze whether variation in the ability of structrural credit risk models to forecast bankruptcy is related to how well these models' assumptions match a firm's bankruptcy process in the real world.

"On Cross-Sectional Variation in the Ability of Structural Models to Forecast Bankruptcy" (joint with Ulf Bruggemann, Lancaster University WPS).

(4) OTHER AREAS

"Corporate Hedging and Shareholder Value" (joint with Sohnke Bartram, forthcoming in the Journal of Financial Research; no impact factor).

"Do German Security Analysts Herd?" (joint with Marcel Naujoks, Alexander Kerl and Andreas Walter, Financial Markets and Portfolio Management 23:1: 3-29; no impact factor).

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