In this paper, we examine the foreign exchange exposure of a sample of U.S. and Japanese banking firms. Using daily data, we construct estimates of the exchange rate sensitivity of the equity returns of the U.S. bank holding companies and compare them to those of a sample of Japanese banks. We...

What has been the effect of the shift in emerging market capital flows toward private sector borrowers? Are emerging market capital flows more efficient? If not, can controls on capital flows improve welfare? This paper shows that the answers depend on the form of default risk. When private...

One plausible mechanism through which financial market shocks may propagate across countries is through the effect of past gains and losses on investors’ risk aversion. The paper first presents a simple model examining how heterogeneous changes in investors’ risk aversion affects portfolio...

Covariance matrix forecasts of financial asset returns are an important component of current practice in financial risk management. A wide variety of models, ranging from matrices of simple summary measures to covariance matrices implied from option prices, are available for generating such...

Beginning in 1998, U.S. commercial banks may determine their regulatory capital requirements for financial market risk exposure using value-at-risk (VaR) models i.e., models of the time-varying distributions of portfolio returns. Currently, regulators have available three hypothesis-testing...

This paper was presented at the conference "Financial services at the crossroads: capital regulation in the twenty-first century" as part of session 3, "Issues in value-at-risk modeling and evaluation." The conference, held at the Federal Reserve Bank of New York on February 26-27, 1998, was...

Over the past decade, commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital. These efforts have been recognized and encouraged by bank regulators; for example, the 1997 Market Risk Amendment (MRA) formally...