Our paper examines conditional risk-return relations in a cross-section of currency portfolios, while modeling economic states using a large number of underlying risk factors. We identify a time-varying relationship between currency returns and volatility risk: investors require a positive risk...

This paper extends the Nelson-Siegel linear factor model by developing a flexible macro-finance framework for modeling and forecasting the term structure of US interest rates. Our approach is robust to parameter uncertainty and structural change, as we consider instabilities in parameters and...

We evaluate stock return predictability using a fully flexible Bayesian framework, which explicitly allows for different degrees of time-variation in coefficients and in forecasting models. We believe that asset return predictability can evolve quickly or slowly, based upon market conditions,...

If asset price risk-return relations vary over time based upon changing economic states, standard unconditional models may "wash out" state dependence and fail to identify that additional risk is contingently compensated with higher return. We address this matter by considering conditional...