Financial markets have become increasingly global in recent decades, yet the pricing of internationally traded assets continues to depend strongly upon local risk factors, leading to several observations that are difficult to explain with standard frameworks. Equity returns depend upon both...

This paper presents a sentiment-based explanation of the forward premium puzzle. Agents over- or underestimate the growth rate of the economy. All else equal, when perceived domestic growth is higher than perceived foreign growth, the domestic interest rate is higher than the foreign interest...

We undertake a real-time VAR analysis of the usefulness of the term spread, the junk-bond spread, the ISM's New Orders Index, and broker/dealer equity for predicting growth in non-farm employment. To get around the "apples and oranges" problem described by Koenig, Dolmas and Piger (2003), we...

Engel and West (EW, 2005) argue that as the discount factor gets closer to one, present-value asset pricing models place greater weight on future fundamentals. Consequently, current fundamentals have very weak forecasting power and exchange rates appear to follow approximately a random walk. We...

The habit model of Campbell and Cochrane (1999) specifies a process for the 'surplus ratio'-the excess of consumption over habit, relative to consumption-rather than an evolution for the habit stock. It's not immediately apparent if their formulation can be accommodated within the Markov chain...