This paper examines the association between inflation, monetary policy and U.S. stock market conditions during the second half of the 20th century. We use a latent-variable VAR to estimate the impact of inflation and other macroeconomic shocks on a latent index of stock market conditions. Our...

This paper examines the association between inflation, monetary policy and U.S. stock market conditions during the second half of the 20th century. We estimate a latent variable VAR to examine how macroeconomic and policy shocks affect the condition of the stock market. Further, we examine the...

We present a closed form solution for the optimal hedging strategy in discrete time of an option whose underlying security follows the Heston Stochastic Volatility process. Our Monte Carlo simulations indicate that this significantly improves hedging performance at weekly and longer hedging...

This article reviews the history of the recent shift to electronic trading in equity, foreign ex- change and fixed-income markets. We analyze a new data set: the eSpeed (Cantor Fitzgerald) electronic Treasury network. We contrast the market microstructure of eSpeed with the tradi- tional voice...

We examine the effects of endogenously determined realignment expectations in a model of a target zone with sluggish price adjustment. We allow these expectations to be based on a policy rule that generates an increasing probability of realignment as output moves away from full employment. We...

Is the risk aversion parameter in the simple intertemporal consumption CAPM “small” as in Hansen and Singleton (1982,1983), or is it that its reciprocal, the intertemporal elasticity of substitution, is small, as in Hall (1988)? This paper attributes the disparate estimates of this...

An extensive empirical literature documents a generally negative relation, named the leverage effect, between asset returns and changes of volatility. It is more challenging to establish such a return-volatility relationship for jumps in high-frequency data. We propose new nonparametric methods...

This paper argues that inferring long-horizon asset-return predictability from the properties of vector autoregressive (VAR) models on relatively short spans of data is potentially unreliable. We illustrate the problems that can arise by re-examining the findings of Bekaert and Hodrick (1992),...