Sparse Signals in the Cross‐Section of Returns

This paper applies the Least Absolute Shrinkage and Selection Operator (LASSO) to make rolling one‐minute‐ahead return forecasts using the entire cross‐section of lagged returns as candidate predictors. The LASSO increases both out‐of‐sample fit and forecast‐implied Sharpe ratios. This out‐of‐sample success comes from identifying predictors that are unexpected, short‐lived, and sparse. Although the LASSO uses a statistical rule rather than economic intuition to identify predictors, the predictors it identifies are nevertheless associated with economically meaningful events: the LASSO tends to identify as predictors stocks with news about fundamentals.     

Tax-Induced Intra-Year Patterns in Bonds Yields

The ratio of the yields on short-term tax-exempt and taxable bonds exhibits a sawtooth pattern that is consistent with the impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid. The effect of the tax deferment at turns of calendar years does not differ appreciably from the effect at the turn of any other tax quarter. Investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax-exempt bonds may benefit from tax-related timing strategies for investing in these bonds. Issuers may benefit from tax-related timing strategies for scheduling interest payments.     

Youth Wages, Risk, and Tertiary Finance Arrangements*

Human capital earnings functions typically explain a small fraction of the total variation in earnings. The considerable uncertainty associated with expected future earnings streams enhances the desirability of a loans scheme for higher education possessing income contingent characteristics on the repayment side. The Higher Education Contribution Scheme (HECS) possesses this feature The profitability of higher education even after taking account of the HECS suggests there is scope for higher student contributions. Other possible modifications to the HECS include higher repayment rates, a change to the tax base, and a minimum repayment amount