In the finance literature, cross-sectional dependence in extreme returns of risky assets is often modelled implicitly assuming an asymptotically dependent structure. If the true dependence structure is asymptotically independent then existing finance models will lead to over-estimation of the...

This paper introduces a model, based on the Kalman filter framework, which allows for time varying parameters, latent factors, and a general GARCH structure for the residuals. With this extension of the Bekaert and Harvey (1997) model it is possible to test if an emerging stock market becomes...

This paper investigates whether different systems of financial market organization influence the way in which newly created stock markets become more (weak-form) efficient. The author conducts a detailed comparative analysis of stocks listed on the Budapest and Warsaw Stock Exchanges, 1991-98,...

We propose a new approach to imposing economic constraints on time-series forecasts of the equity premium. Economic constraints are used to modify the posterior distribution of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We...

We propose a new method to model hedge fund risk exposures using relatively high frequency conditioning variables. In a large sample of funds, we find substantial evidence that hedge fund risk exposures vary across and within months, and that capturing within-month variation is more important...

We propose a new method to capture changes in hedge funds' exposures to risk factors, exploiting information from relatively high frequency conditioning variables. Using a consolidated database of nearly 15,000 individual hedge funds between 1994 and 2009, we find substantial evidence that hedge...

Returns on international equities are characterized by jumps; moreover, these jumps tend to occur at the same time across countries leading to systemic risk .In this Paper, we evaluate whether systemic risk reduces substantially the gains from international diversification. First, in order to...

Diversification opportunities in Euroland appear to have improved significantly since the advent of the euro, thus invalidating the prospects identified in the last years of the convergence-to-EMU period. We identify low frequency movements in the time series of return dispersions suggestive of...

International financial integration has greatly increased the scope for changes in a country’s net foreign asset position through the “valuation channel” of external adjustment, namely capital gains and losses on the country’s external assets and liabilities. We examine this valuation...

We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets. Capital flows drive exchange rates by altering the balance sheets of financiers that bear the risks resulting from international imbalances in the demand for financial assets. Such...