This paper investigates the relative role of price discovery between two long-term swap contracts that exchange U.S. dollars for Japanese yen - the cross-currency basis swap and the foreign exchange (FX) swap - using structural state space models. Our main findings are that: (i) the currency...

This paper examines from various angles foreign investors' daily transactions in six emerging Asian equity markets and their relationship with local market returns and exchange rate changes over the period 1999-2006. Confirming much of the literature, we find that equity market returns matter...

Currency appreciation against the US dollar is associated with the compression of emerging market economy (EME) sovereign yields. We find that this yield compression is due to reduced risk premiums rather than expectations of interest rates already priced into forward rates. We explore a model...

This paper proposes a simple but comprehensive structural vector autoregressive (SVAR) model to examine the underlying factors of oil price dynamics. The distinguishing feature is to explicitly assess the role of expectations on future aggregate demand and oil supply in addition to the...

We document significant US monetary policy (MP) spillovers to international bond markets. Our methodology identifies US MP shocks as the change in short-term treasury yields within a narrow window around FOMC meetings, and traces their effects on international bond yields using panel...

In emerging market economies, currency appreciation goes hand in hand with compressed sovereign bond spreads, even for local currency sovereign bonds. This yield compression comes from a reduction in the credit risk premium. Crucially, the relevant exchange rate involved in yield compression is...

We investigate if asset return volatility is predictable by macroeconomic and financial variables and shed light on the economic drivers of financial volatility. Our approach is distinct due to its comprehensiveness: First, we employ a data-rich forecast methodology to handle a large set of...

We provide a broad empirical investigation of momentum strategies in the foreign exchange market. We find a significant cross-sectional spread in excess returns of up to 10% p.a. between past winner and loser currencies. This spread in excess returns is not explained by traditional risk factors,...

The recent sovereign debt crisis in the euro area has seen credit spreads on sovereign bonds and credit default swaps (CDS) surge for a number of member states. While these events have increased interest in understanding the dynamics of sovereign spreads in bond and CDS markets, there is little...

The 30-year U.S. swap spreads have been negative since September 2008. We offer a novel explanation for this persistent anomaly. Through an illustrative model, we show that underfunded pension plans optimally use swaps for duration hedging. Combined with dealer banks' balance sheet constraints,...