These lecture notes are about financial innovations. We ask why are there some innovation and how is an innovative idea realized. This forces us to consider practical and structural aspects (regulations, taxation, markets) as key drivers of innovations and also basic formal aspects in valuation....

Using a latent variables approach, we estimate the dynamics of dividends and returns in a tractable present-value model with time-varying risks. Expected returns imply a similar return predictability as under homoskedasticity, while expected dividend growth is more persistent and explains a...

Conventional tests of present-value models over-reject the null of no predictability. In order to better account for the intrinsic probability of detecting predictive relations by chance alone, we develop a new nonparametric Monte Carlo testing method, which does not rely on distributional...

Asymptotic tests over-reject the null of no predictability in present-value models. We develop a nonparametric testing approach in state space models, implying reliable finite sample inference under weak assumptions on price-dividend ratio and dividend shocks. We find sharp evidence of return...

Asymptotic tests over-reject the null of no predictability in present-value models. We develop a nonparametric testing approach in state space models, implying reliable finite sample inference under weak assumptions on price-dividend ratio and dividend shocks. We find sharp evidence of return...