The paper outlines a methodology for analyzing daily stock returns that relinquishes the assumption of global stationarity. Giving up this common working hypothesis reflects our belief that fundamental features of the financial markets are continuously and significantly changing. Our approach...

We argue that the current framework for predictive ability testing (e.g., West, 1996) is not necessarily useful for real-time forecast selection, i.e., for assessing which of two competing forecasting methods will perform better in the future. We propose an alternative framework for...

Our study supports the hypothesis of global non-stationarity of the return time series. We bring forth both theoretical and empirical evidence that the long range dependence (LRD) type behavior of the sample ACF and the periodogram of absolute return series and the IGARCH effect documented in...

Credit risk models like Moody’s KMV are now well established in the market and give bond managers reliable estimates of default probabilities for individual firms. Until now it has been hard to relate those probabilities to the actual credit spreads observed on the market for corporate bonds....

This paper identifies the Multifractal Models of Asset Return (MMARs) from the eight nodal term structure series of US Treasury rates as well as the Fed Funds rate and, after proper synthesis, simulates those MMARs. We show that there is an inverse persistence term structure in the sense that...

Many authors have documented that it is challenging to explain exchange rate fluctuations with macroeconomic fundamentals: a random walk forecasts future exchange rates better than existing macroeconomic models. This paper applies newly developed tests for nested model that are robust to the...