Relations between foreign exchange risk premia, exchange rate volatility, and the volatilities of the pricing kernels for the underlying currencies, are derived under the assumption of integrated capital markets. As predicted, the volatility of exchange rates is significantly associated with the...

The optimal portfolio strategy is developed for an investor who has detected an asset pricing anomaly but is not certain that the anomaly is genuine rather than merely apparent. The analysis takes account of the fact that the parameters of both the underlying asset pricing model and the...

We show that, when stock prices are subject to stochastic mispricing errors, expected rates of return may depend not only on the fundamental risk that is captured by a standard asset pricing model, but also on the type and degree of asset mispricing, even when the mispricing is zero on average....