Scholars@Duke
Michael W. Brandt

Michael W. Brandt

Kalman J. Cohen Distinguished Professor of Business Administration
Fuqua School of Business

Selected Publications

Mutual fund performance: Using bespoke benchmarks to disentangle mandates, constraints and skill

Journal Article Journal of Empirical Finance · January 1, 2021 While no two mutual funds are alike in terms of their mandates and constraints, metrics used to evaluate fund performance relative to peers typically fail to account for these differences by relying on generic benchmark indices and rankings. We develop a m ... Full text Cite

Can Hedge Funds Time the Market?

Journal Article International Review of Finance · June 1, 2019 We answer the somewhat narrower question of whether hedge funds adjust their conditional market exposure in response to real-time changes in macroeconomic conditions, and whether doing so improves their performance. We find that hedge funds differ substant ... Full text Cite

Macro fundamentals or geopolitical events? A textual analysis of news events for crude oil

Journal Article Journal of Empirical Finance · March 1, 2019 News about macroeconomic fundamentals and geopolitical events affect crude oil markets differently. Using sentiment scores for a broad set of global news of different types, we find that news related to macro fundamentals have an impact on the oil price in ... Full text Cite

Linear approximations and tests of conditional pricing models

Journal Article Review of Finance · March 1, 2018 If a nonlinear risk premium in a conditional asset pricing model is approximated with a linear function, as is commonly done in empirical research, the fitted model is misspecified. We use a generic reduced-form model economy with moderate risk premium non ... Full text Cite

Distilling the macroeconomic news flow

Journal Article Journal of Financial Economics · September 1, 2015 We propose a simple cross-sectional technique to extract daily factors from economic news released at different times and frequencies. Our approach can effectively handle the large number of different announcements that are relevant for tracking current ec ... Full text Cite

On the timing and pricing of dividends

Journal Article American Economic Review · June 1, 2012 Full text Cite

What does equity sector orderflow tell us about the economy?

Journal Article Review of Financial Studies · November 1, 2011 Investors rebalance their portfolios as their views about expected returns and risk change. We use empirical measures of portfolio rebalancing to back out investors' views, specifically, their views about the state of the economy. We show that aggregate po ... Full text Cite

Portfolio Choice Problems

Journal Article · December 1, 2010 This chapter focuses on the econometric treatment of portfolio choice problems. The goal is to describe, discuss, and illustrate through examples the different econometric approaches proposed in the literature for relating the theoretical formulation and s ... Full text Cite

The idiosyncratic volatility puzzle: Time trend or speculative episodes

Journal Article Review of Financial Studies · February 1, 2010 Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962-1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is co ... Full text Cite

When it cannot get better or worse: The asymmetric impact of good and bad news on bond returns in expansions and recessions

Journal Article Review of Finance · January 1, 2010 We examine empirically the response of bond returns and their volatility to good and bad macroeconomic news during expansions and recessions. We find that macroeconomic announcements are most important when they contain bad news for bond returns in expansi ... Full text Cite

Parametric portfolio policies: Exploiting characteristics in the cross-section of equity returns

Journal Article Review of Financial Studies · September 1, 2009 We propose a novel approach to optimizing portfolios with large numbers of assets. We model directly the portfolio weight in each asset as a function of the asset's characteristics. The coefficients of this function are found by optimizing the investor's a ... Full text Cite

Flight-to-quality or flight-to-liquidity? Evidence from the euro-area bond market

Journal Article Review of Financial Studies · March 1, 2009 Do bond investors demand credit quality or liquidity? The answer is both, but at different times and for different reasons. Using data on the Euro-area government bond market, which features a unique negative correlation between credit quality and liquidit ... Full text Cite

Resolving macroeconomic uncertainty in stock and bond markets

Journal Article Review of Finance · January 1, 2009 We establish an empirical link between the ex-ante uncertainty about macroeconomic fundamentals and the ex-post resolution of this uncertainty in financial markets.We measure macroeconomic uncertainty using prices of economic derivatives and relate thismea ... Full text Cite

Optimal decentralized investment management

Journal Article Journal of Finance · August 1, 2008 We study an institutional investment problem in which a centralized decision maker, the Chief Investment Officer (CIO), for example, employs multiple asset managers to implement investment strategies in separate asset classes. The CIO allocates capital to ... Full text Cite

Price discovery in the treasury futures market

Journal Article Journal of Futures Markets · November 1, 2007 The paper conducts a regression analysis utilizing both futures and cash market prices and net orderflow to determine where price discovery takes place as well as the forces at play that influence the location. Specifically, given the strong theoretical li ... Full text Cite

Solving dynamic portfolio choice problems by recursing on optimized portfolio weights or on the value function?

Journal Article Computational Economics · May 1, 2007 Most dynamic programming methods deployed in the portfolio choice literature involve recursions on an approximated value function. The simulation-based method proposed recently by Brandt, Goyal, Santa-Clara, and Stroud (Review of Financial Studies, 18, 831 ... Full text Cite

The effect of macroeconomic news on beliefs and preferences: Evidence from the options market

Journal Article Journal of Monetary Economics · November 1, 2006 We examine the effect of regularly scheduled macroeconomic announcements on the beliefs and preferences of participants in the U.S. Treasury market by comparing the option-implied state-price densities (SPDs) of bond prices shortly before and after the ann ... Full text Cite

Volatility forecasting with range-based EGARCH models

Journal Article Journal of Business and Economic Statistics · October 1, 2006 We provide a simple, yet highly effective framework for forecasting return volatility by combining exponential generalized autoregressive conditional heteroscedasticity models with data on the range. Using Standard and Poor's 500 index data for 1983-2004, ... Full text Cite

Dynamic portfolio selection by augmenting the asset space

Journal Article Journal of Finance · October 1, 2006 We present a novel approach to dynamic portfolio selection that is as easy to implement as the static Markowitz paradigm. We expand the set of assets to include mechanically managed portfolios and optimize statically in this extended asset space. We consid ... Full text Cite

International risk sharing is better than you think, or exchange rates are too smooth

Journal Article Journal of Monetary Economics · May 1, 2006 Exchange rates depreciate by the difference between domestic and foreign marginal utility growth or discount factors. Exchange rates vary a lot, as much as 15% per year. However, equity premia imply that marginal utility growth varies much more, by at leas ... Full text Cite

A no-arbitrage approach to range-based estimation of return covariances and correlations

Journal Article Journal of Business · January 1, 2006 We extend range-based volatility estimation to the multivariate case. In particular, we propose a range-based covariance estimator motivated by a key financial economic consideration, the absence of arbitrage, in addition to statistical considerations. We ... Full text Cite

Bayesian range-based estimation of stochastic volatility models

Journal Article Finance Research Letters · December 1, 2005 Alizadeh, Brandt, and Diebold [2002. Journal of Finance 57, 1047-1091] propose estimating stochastic volatility models by quasi-maximum likelihood using data on the daily range of the log asset price process. We suggest a related Bayesian procedure that de ... Full text Cite

A simulation approach to dynamic portfolio choice with an application to learning about return predictability

Journal Article Review of Financial Studies · September 1, 2005 We present a simulation-based method for solving discrete-time portfolio choice problems involving non-standard preferences, a large number of assets with arbitrary return distribution, and, most importantly, a large number of state variables with potentia ... Full text Cite

Equilibrium stock return dynamics under alternative rules of learning about hidden states

Journal Article Journal of Economic Dynamics and Control · September 1, 2004 We examine the properties of equilibrium stock returns in an economy in which agents need to learn the hidden state of the endowment process. We consider Bayesian and suboptimal learning rules, including near-rational learning, conservatism, representative ... Full text Cite

On the relationship between the conditional mean and volatility of stock returns: A latent VAR approach

Journal Article Journal of Financial Economics · May 1, 2004 We model the conditional mean and volatility of stock returns as a latent VAR process to study their contemporaneous and intertemporal relationships in a flexible statistical framework and without relying on exogenous predictors. We find a strong and robus ... Full text Cite

Price discovery in the U.S. treasury market: The impact of orderflow and liquidity on the yield curve

Journal Article Journal of Finance · January 1, 2004 We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, the yield curve. We find that orderflow imbalances (excess buying or selling pressure) account for up to 26% of the day-to-d ... Full text Cite

Time-varying risk aversion and unexpected inflation

Journal Article Journal of Monetary Economics · October 1, 2003 We formulate a consumption-based asset pricing model in which aggregate risk aversion is time-varying in response to both news about consumption growth (as in a habit formation model) and news about inflation. We estimate our model and explore its pricing ... Full text Cite

Hedging demands in hedging contingent claims

Journal Article Review of Economics and Statistics · February 1, 2003 Minimum-variance hedging of a contingent claim in discrete time is suboptimal when the contingent claim is hedged for multiple periods and the objective is to maximize the expected utility of cumulative hedging errors. This is because the hedging errors ar ... Full text Cite

Cross-sectional tests of deterministic volatility functions

Journal Article Journal of Empirical Finance · December 1, 2002 We study the cross-sectional performance of option pricing models in which the volatility of the underlying stock is a deterministic function of the stock price and time. For each date in our sample of FTSE 100 index option prices, we fit an implied binomi ... Full text Cite

Simulated likelihood estimation of diffusions with an application to exchange rate dynamics in incomplete markets

Journal Article Journal of Financial Economics · January 30, 2002 We present an econometric method for estimating the parameters of a diffusion model from discretely sampled data. The estimator is transparent, adaptive, and inherits the asymptotic properties of the generally unattainable maximum likelihood estimator. We ... Full text Cite

Comment [2] (multiple letters)

Journal Article Journal of Business and Economic Statistics · January 1, 2002 Cite

Range-based estimation of stochastic volatility models

Journal Article Journal of Finance · January 1, 2002 We propose using the price range in the estimation of stochastic volatility models. We show theoretically, numerically, and empirically that range-based volatility proxies are not only highly efficient, but also approximately Gaussian and robust to microst ... Full text Cite

Variable selection for portfolio choice

Journal Article Journal of Finance · January 1, 2001 We study asset allocation when the conditional moments of returns are partly predictable. Rather than first model the return distribution and subsequently characterize the portfolio choice, we determine directly the dependence of the optimal portfolio weig ... Full text Cite

Estimating portfolio and consumption choice: A conditional Euler equations approach

Journal Article Journal of Finance · October 1, 1999 This paper develops a nonparametric approach to examine how portfolio and consumption choice depends on variables that forecast time-varying investment opportunities. I estimate single-period and multiperiod portfolio and consumption rules of an investor w ... Full text Cite