Results 1  10
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425
Predictive regressions
 Journal of Financial Economics
, 1999
"... When a rate of return is regressed on a lagged stochastic regressor, such as a dividend yield, the regression disturbance is correlated with the regressor's innovation. The OLS estimator's "nitesample properties, derived here, can depart substantially from the standard regression set ..."
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Cited by 452 (19 self)
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When a rate of return is regressed on a lagged stochastic regressor, such as a dividend yield, the regression disturbance is correlated with the regressor's innovation. The OLS estimator's "nitesample properties, derived here, can depart substantially from the standard regression setting. Bayesian posterior distributions for the regression parameters are obtained under speci"cations that di!er with respect to (i) prior beliefs about the autocorrelation of the regressor and (ii) whether the initial observation of the regressor is speci"ed as "xed or stochastic. The posteriors di!er across such speci"cations, and asset allocations in the presence of estimation risk exhibit sensitivity to those
The forward discount anomaly and the risk premium: A survey of recent evidence
 JOURNAL OF EMPIRICAL FINANCE
, 1996
"... Forward exchange rate unbiasedness is rejected in tests from the current floating exchange rate era. This paper surveys advances in this area since the publication of Hodrick's (1987) survey. It documents that the change in the future exchange rate is generally negatively related to the forward ..."
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Cited by 394 (11 self)
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Forward exchange rate unbiasedness is rejected in tests from the current floating exchange rate era. This paper surveys advances in this area since the publication of Hodrick's (1987) survey. It documents that the change in the future exchange rate is generally negatively related to the forward discount. Properties of the expected forward forecast error are reviewed. Issues such as the relation of uncovered interest parity to real interest parity, and the implications of uncovered interest parity for cointegration of various quantities are discussed. The modeling and testing for risk premiums is surveyed. Included in this area are tests of the consumption CAPM, tests of the latent variable model, and portfoliobalance models of risk premiums. General equilibrium models of the risk premium are examined and their empirical implications explored. The survey does not cover the important areas of learning and peso problems, tests of rational expectations based on survey data, or the models of irrational expectations and speculative bubbles.
Evaluating an Estimated New Keynesian Small Open Economy Model,” Journal of Economic Dynamics and Control, forthcoming
, 2006
"... This paper estimates and tests a new Keynesian small open economy model in the tradition of Christiano, Eichenbaum, and Evans (2005) and Smets and Wouters (2003) using Bayesian estimation techniques on Swedish data. To account for the switch to an inflation targeting regime in 1993 we allow for a d ..."
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Cited by 104 (16 self)
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This paper estimates and tests a new Keynesian small open economy model in the tradition of Christiano, Eichenbaum, and Evans (2005) and Smets and Wouters (2003) using Bayesian estimation techniques on Swedish data. To account for the switch to an inflation targeting regime in 1993 we allow for a discrete break in the central bank’s instrument rule. The empirical results indicate that allowing for such a regime shift is indeed supported by the data. A key equation in the model the uncovered interest rate parity (UIP) condition is well known to be rejected empirically. Therefore we explore the consequences of modifying the UIP condition to allow for a negative correlation between the risk premium and the expected change in the nominal exchange rate. The results show that the modification increases the persistence in the real exchange rate and that this model has an empirical advantage compared with the standard UIP specification.
Towards a solution to the puzzles in exchange rate economics: where do we stand?, Canadian
 Journal of Economics
, 2005
"... This paper provides a selective overview of puzzles in exchange rate economics. We begin with the forward bias puzzle: high interest rate currencies appreciate when one might guess that investors would demand higher interest rates on currencies expected to fall in value. We then analyze the purchasi ..."
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Cited by 83 (2 self)
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This paper provides a selective overview of puzzles in exchange rate economics. We begin with the forward bias puzzle: high interest rate currencies appreciate when one might guess that investors would demand higher interest rates on currencies expected to fall in value. We then analyze the purchasing power parity puzzle: the real exchange rate displays no (strong) reversion to a stable longrun equilibrium level. Finally, we cover the exchange rate disconnect puzzle: the lack of a link between the nominal exchange rate and economic fundamentals. For each puzzle, we critically review the literature and speculate on potential solutions. JEL classification: F31.
HabitBased Explanation of the Exchange Rate Risk Premium
, 2005
"... This paper presents a fully rational general equilibrium model that produces a timevarying exchange rate risk premium and solves the uncovered interest rate parity (U.I.P) puzzle. In this twocountry model, agents are characterized by slowmoving external habit preferences derived from Campbell & ..."
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Cited by 81 (6 self)
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This paper presents a fully rational general equilibrium model that produces a timevarying exchange rate risk premium and solves the uncovered interest rate parity (U.I.P) puzzle. In this twocountry model, agents are characterized by slowmoving external habit preferences derived from Campbell & Cochrane (1999). Endowment shocks are i.i.d and real riskfree rates are timevarying. Agents can trade across countries, but when a unit is shipped, only a fraction of the good arrives to the foreign shore. The model gives a rationale for the U.I.P puzzle: the domestic investor receives a positive exchange rate risk premium when she is more riskaverse than her foreign counterpart. Times of high riskaversion correspond to low interest rates. Thus, the domestic investor receives a positive risk premium when interest rates are lower at home than abroad. The model is both simulated and estimated. The simulation recovers the usual negative coefficient between exchange rate variations and interest rate differentials. When the iceberglike trade cost is taken into account, the exchange rate variance produced is in line with its empirical counterpart. A nonlinear estimation of the model using consumption data leads to reasonable parameters when pricing the foreign excess returns of an American investor.
Simulated likelihood estimation of diffusions with an application to exchange rate dynamics in incomplete markets
, 2002
"... ..."
Presidential Address: Discount Rates
 Journal of Finance
, 2011
"... Discountrate variation is the central organizing question of current assetpricing research. I survey facts, theories, and applications. Previously, we thought returns were unpredictable, with variation in pricedividend ratios due to variation in expected cashflows. Now it seems all pricedividend ..."
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Cited by 71 (1 self)
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Discountrate variation is the central organizing question of current assetpricing research. I survey facts, theories, and applications. Previously, we thought returns were unpredictable, with variation in pricedividend ratios due to variation in expected cashflows. Now it seems all pricedividend variation corresponds to discountrate variation. We also thought that the crosssection of expected returns came from the CAPM. Now we have a zoo of new factors. I categorize discountrate theories based on central ingredients and data sources. Incorporating discountrate variation affects finance applications, including portfolio theory, accounting, cost of capital, capital structure, compensation, and macroeconomics. ASSET PRICES SHOULD EQUAL expected discounted cashflows. Forty years ago, Eugene Fama (1970) argued that the expected part, “testing market efficiency,” provided the framework for organizing assetpricing research in that era. I argue that the “discounted ” part better organizes our research today. I start with facts: how discount rates vary over time and across assets. I turn
Rethinking Deviations from Uncovered Interest Parity: The Role of Covariance Risk and Noise
 Economic Journal
, 1998
"... We examine the ability of the standard intertemporal asset pricing model and a model of noise trading to explain why the forward premium predicts the future depreciation with the `wrong ' sign. We ¯nd that the intertemporal asset pricing model is unable to predict risk premia with the correct s ..."
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Cited by 58 (3 self)
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We examine the ability of the standard intertemporal asset pricing model and a model of noise trading to explain why the forward premium predicts the future depreciation with the `wrong ' sign. We ¯nd that the intertemporal asset pricing model is unable to predict risk premia with the correct sign to be consistent with the data. The noisetrader model, while highly stylized, receives fragmentary support from empirical research on survey expectations.