One of the most puzzling features of currency prices is the "forward premium anomaly": the tendency for high interest rate currencies to appreciate. We characterize the anomaly in the context of affine models of the term structure of interest rates. In affine models, the anomaly requires either...

type="main" <title type="main">ABSTRACT</title> <p>We propose two data-based performance measures for asset pricing models and apply them to models with recursive utility and habits. Excess returns on risky securities are reflected in the pricing kernel's dispersion and riskless bond yields are reflected in its dynamics. We...</p>