Research

“In God we trust; all others must bring data.”   W. Edwards Deming.

For codes to replicate the published papers, please visit the publications page.


Working Papers:

Jan Ericsson, Babak Lotfaliei, 2018, "Variance Risk Premium and Investment Uncertainty", Working paper, July (First version: July 2014
  • Abstract:
This article documents that the variance risk premium in asset returns decreases firms' investment. In our model, the premium increases the value of the real option to postpone an irreversible investment. In our data, we find support for a negative relationship between variance risk premia and firms' rate of investment. The relation is more important for investment-grade firms, which tend to have low historical variance but relatively high variance risk premia. Controlling for this premium allows us to reconcile an otherwise surprising pattern across credit ratings: investment rates are higher for speculative grade than investment grade firms.


Western Finance Association 2018, SDSU Finance Seminar, California Corporate Finance Conference 2017, Northern finance Association 2017, Global Finance Conference 2016, 
Financial Management Association (FMA) 2016 meeting, Finance Forum (Barcelona) 2017


Amir Akbari, Babak Lotfaliei, 2015, "International Correlation Premium in the Stock Markets", Working paper, December, San Diego State University 
  • Abstract:
Historically, correlations among international markets have doubled in the past 30 years from 40% to 80%. An increasing correlation implies that the diversification benefits from investing in different countries decrease. This phenomenon is analogical to observed correlation among stocks in the US stock market, but in a larger scale. There is evidence on priced correlation risk among the stocks in the US market. This project extends the correlation-risk idea to the international markets: Did markets consider the increasing trend of the correlation and allocate a premium to that? How big is the correlation risk premium among the international markets? If correlation has priced risk, risk-adjusted (RA) correlation is expected to be larger than historical correlation; market has predicted that correlation is risky and already has taken that into account. Otherwise, RA correlation is equal to historical correlation if correlation is not risky. In addition to portfolio management implications, the outcome of this project has implications for pricing index and stock options worldwide.

For more information please see my CV.