We investigate the predictive information content in foreign exchange volatility risk premia for exchange rate returns. The volatility risk premium is the difference between realized volatility and a model-free measure of expected volatility that is derived from currency options, and reflects...

This paper applies the Meese-Rogoff (1983a) methodology to the stock market. We compare the out-of-sample forecasting accuracy of various time-series and fundamentals-based models of aggregate stock prices. We stick as close as possible to the original Meese-Rogoff sample and methodology. Just...

We examine trade credit links between firms as a channel of international return comovement. We model firms in different countries connected by trade credit links in segmented stock markets with asymmetrically informed investors. The model predicts that the cross-serial correlation of country...

I develop a toolbox to analyze the properties of multivariate Markov-switching models. I first derive analytical formulas for the evolution of first and second moments, taking into account the possibility of regime changes. The formulas are then used to characterize the evolution of expectations...

Similarities between the Great Depression and the Great Recession are documented with respect to the behavior of financial markets. A Great Depression regime is identified by using a Markov-switching VAR. The probability of this regime has remained close to zero for many decades, but spiked for...

This paper explores the effects of the US business cycle on US stock market returns through an analysis of the equity risk premium. We propose a new methodology based on the SDF approach to asset pricing that allows us to uncover the different effects of aggregate demand and supply shocks. We...

Surprisingly there are very few estimates of the equity risk premium period-by-period that satisfy a no-arbitrage condition, despite the vast literature on the subject. This is mainly due to the difficulties of estimation. Using the stochastic discount factor (SDF) model based on observable...

This paper provides an overview of the analysis of the term structure of interest rates with a special emphasis on recent developments at the intersection of macroeconomics and finance. The topic is important to investors and also to policymakers, who wish to extract macroeconomic expectations...

The empirical literature on nominal exchange rates shows that the current exchange rate is often a better predictor of future exchange rates than a linear combination of macroeconomic fundamentals. This result is behind the famous Meese-Rogoff puzzle. In this paper we evaluate whether parameter...

In this paper we study whether policy makers should wait to intervene until a financial crisis strikes or rather act in a preemptive manner. We study this question in a relatively simple dynamic stochastic general equilibrium model in which crises are endogenous events induced by the presence of...