This paper provides a new approach to model the common variation in the term structure of credit spreads. The novelty is that common factors are extracted using canonical relations between credit spreads and observable economic variables. We show how these factors can be used to test if a given...

We propose new generalized method of moments (GMM) estimators for the number of latent factors in linear factor models. The estimators are appropriate for data with a large (small) number of cross-sectional observations and a small (large) number of time series observations. The estimation...

We examine the asymptotic and finite-sample properties of the two-pass (TP) cross-sectional regressions estimators when factors and asset returns are conditionally heteroskedastic and/or autocorrelated. Using a minimum distance approach, we derive the heteroskedasticity- and/or...

This paper investigates the reliability of the two-pass (TP) estimators of factor risk prices when betas (multifactor loadings) have high levels of cross-sectional correlation (multicollinearity) and/or when some of them have small cross-sectional variations (near-invariance). Our simulation...

Federal Open Market Committee (FOMC) meeting days provide a natural laboratory for exploring the effects of policy uncertainty and learning on exchange rate determination. A reasonable hypothesis is that the meeting outcomes are price-relevant public information associated with a switch to an...