Showing 1 - 10 of 31
The international macroeconomics literature has had a hard time capturing the joint comovement of quantities and asset prises across countries. We introduce recursive preferences in an endogenous growth model of innovation and technology adoption through trade in varieties and provide an...
Persistent link: https://www.econbiz.de/10011160666
A basic tenet of lognormal asset pricing models is that a risky currency is associated with a low pricing kernel volatility. Empirical evidence implies that a risky currency is associated with a relatively high interest rate. Taken together, these two statements associate high-interest-rate...
Persistent link: https://www.econbiz.de/10011079907
High interest rate currencies tend to appreciate. This is the uncovered interest rate parity (UIP) puzzle. It is primarily a statement about short-term interest rates and how they are related to exchange rates. Short-term interest rates are strongly affected by monetary policy. The UIP puzzle,...
Persistent link: https://www.econbiz.de/10008540025
Persistent link: https://www.econbiz.de/10008445568
The idea of component models for volatility is extended to dynamic correlations. We propose a model of dynamic correlations with a short- and long-run component specification. We call this class of models DCC-MIDAS as the key ingredients are a combination of the Engle (2002) DCC model, the Engle...
Persistent link: https://www.econbiz.de/10012753193
In this paper we document the presence of a term structure of risk and we propose how to measure it using alternative models to forecast volatility and the Value at Risk at different horizons. We then quantify the benefits of an investor that is aware of the existence of a term structure of risk...
Persistent link: https://www.econbiz.de/10012754875
We propose an equilibrium model that can explain a wide range of international finance puzzles, including the high correlation of international stock markets despite the lack of correlation of fundamentals. We conduct an empirical analysis of our model, which combines cross-country-correlated...
Persistent link: https://www.econbiz.de/10012755213
We evaluate alternative models of variances and correlations with an economic loss function. We construct portfolios to minimize predicted variance subject to a required return. It is shown that the realized volatility is smallest for the correctly specified covariance matrix for any vector of...
Persistent link: https://www.econbiz.de/10012755067
amplify the relevance of tax uncertainty.
Persistent link: https://www.econbiz.de/10011080833
We model investment options as intangible capital in a production economy in which younger vintages of assets in place have lower exposure to aggregate productivity risk. In equilibrium, physical capital requires a substantially higher expected return than intangible capital. Quantitatively, our...
Persistent link: https://www.econbiz.de/10010683096