The pricing and control of firms' debt has become a major issue since Merton's (1974) seminal article. Yet Merton as well as other recent theories presume that the asset value of the firm is independent of the debt of the firm. However, when using debt finance, firms may have to pay a premium...

We introduce a multivariate Lagrange multiplier (LM) test for fractional integration. We derive and analyze the LM statistic and show that it is asymptotically noncentral chi-squared distributed under local alternatives, and that, under Gaussianity, the LM test is asymptotically efficient...

We develop a microstructure model that, in contrast to previous models, allows one to estimate the frequency and quality of private information. In addition, the model produces stationary asset price and trading volume series. We find evidence that information arrives frequently within a day and...

Following the 1991 recession, financial institutions invested heavily in risk management capabilities. These investments targeted financial (credit, interest rate, and market) risk management. I will show that these investments helped reduce earnings and loss volatility during the 2001...

In this article we reexamine the profitability of technical analysis using White's reality check and Hansen's SPA test that correct the data snooping bias. Compared to previous studies, we study a more complete "universe" of trading techniques, including not only simple rules but also complex...

The daily term structure of interest rates is filtered to reduce the influence of cross-correlations and autocorrelations on its factors. A three-factor model is fitted to the filtered data. We perform statistical tests, finding that factor loadings are unstable through time for daily data. This...

Financial decision makers often consider the information in currency option valuations when making assessments about future exchange rates. The purpose of this article is to systematically assess the quality of option-based volatility and density forecasts. We use a unique dataset consisting of...

In this article I study the statistical properties of a bias-corrected realized variance measure when high-frequency asset prices are contaminated with market microstructure noise. The analysis is based on a pure jump process for asset prices and explicitly distinguishes among different sampling...