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Covid-19 Cases Are Rising, So Why Are Deaths Falling? (Defense One, 9 min read) Deaths lag cases by up to a month, so a surge in deaths in the US would have a delayed effect. ‘Expanded testing is finding more cases, milder cases, and earlier cases.’ Affected patients are young, and so more mobile, while older people are cautious. Doctors know more about the disease and can treat symptoms and out-of-control immune response through steroid dexamethasone. Summer might be helping as people get more vitamin D (better immune system) or stay indoors less.
Real-Time Detection of Regimes of Predictability in the US Equity Premium (JAE, 33 page read) According to Timmermann (2008), stock market returns can be predicted locally during ‘pockets in time’. Using a new statistical monitoring technique, the authors monitor the stability of predictive regression models for the US equity premium. They aim to detect predictability windows as soon as possible after their inception. Their results suggest that the one-month ahead equity premium has temporarily been predictable and that these could have been detected in real-time by practitioners using their proposed methodology.
Illiquidity and Stock Returns II: Cross-Section and Time-Series Effects (RFS, 26 page read) Published in the Review of Financial Studies, this paper proposes that the average of inverse dollar trading volume (IDVOL) is sufficient to explain the pricing of illiquidity. Using cross-section and time-series data, they show that the Amihud’s illiquidity measure (ILLIQ) premium is significantly positive. Also, the aggregate market ILLIQ outperforms market IDVOL in estimating the effect of market illiquidity shocks on realised stock returns.
Dollar Shortages and Central Bank Swap Lines (BoE, 28 page read) The BoE explore the role of dollar shortage shocks and central bank swap lines in a two-country New Keynesian model with financial frictions. They show CB swap lines can attenuate UIP deviations and lending contractions in the face of currency-specific funding shocks.