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1

Estimating the Discount Rate As indicated in the comments, you would use the CAPM (or another equity factor model) to model stock returns $r_{it}$ beyond the risk-free rate $r_f$ as a function of returns on a market index $r_{Mt}$: $$ r_{it} - r_f = \alpha_i + \beta_i (r_{Mt} - r_f) + \epsilon_{it}. $$ Once we have estimates $\hat\alpha_i$ and $\hat\beta_i$, ...


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The answer to your question could fill an entire asset pricing text book. Your question mixes theory and empirics. A different way of looking at it is to look at the identity: $$ 1 = E[M_t R_t]$$ To generate a sufficient risk premium either you need to have the covariance of the SDF with the the return to be sufficiently high. Campbell and Cochrane basically ...


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The cash flow news / discount rate news decomposition is given by $$r_{t+1}-\mathbb{E}_t[r_{t+1}]=(\mathbb{E}_{t+1}-\mathbb{E}_t)\sum_{j=0}^{\infty}\rho^j\Delta d_{t+1+j}-(\mathbb{E}_{t+1}-\mathbb{E}_t)\sum_{j=1}^{\infty}\rho^j\Delta r_{t+1+j},$$ where $r_{t}$ is log-return $d_{t}$ is log-dividend and $\rho$ is a constant. This follows directly from the ...


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Intuition is just that the bond price by definition is a convex function of the rates, and the expectation of a convex function increases with volatility. Note that this result is model independent.


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The premise of your question is wrong. European bond markets usually quote clean prices (without the accrued) for performing bonds - exactly like U.S., Canadian, and most Latin American bond markets. Both in American and in European bond markets, bonds begin to be quoted dirty (with the accrued, total proceeds) only when they are on the verge of defaulting. ...


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Maybe a "statistical mechanics" approach - paper at https://arxiv.org/pdf/1907.04925.pdf and code at https://uk.mathworks.com/matlabcentral/fileexchange/72000-canonical-ensemble-for-time-series From the paper abstract: "This consists of a statistical mechanical approach - analogous to the configuration model for networked systems - for ...


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No specific reason in that, US Treas and IG Bonds are the most traded FI instrument, like there are difference in swap terms. US treas mkt evolved and then domintaed the Fixd income trading space much earlier.


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