To capture time-variation in the risk exposure of exchange rates, this paper suggests a factor model with stock and bond markets as the explanatory factors - but where the betas are allowed to depend on the exchange rate volatility. Empirical results on daily data from 1995 to 2008 show that a...

The common perception in the literature, mainly based on U.S. data, is that current dividend yields are uninformative about future dividends. We show that this finding changes substantially when looking at a broad international panel of countries, as aggregate dividend growth rates are found to...

Models for the conditional joint distribution of the U.S. Dollar/Japanese Yen and Euro/Japanese Yen exchange rates, from November 2001 until June 2007, are evaluated and compared. The conditional dependency is allowed to vary across time, as a function of either historical returns or a...

We investigate the intertemporal risk-return trade-off of foreign ex- change (FX) rates for ten currencies quoted against the USD. For each currency, we use three risk measures simultaneously that pertain to that currency; its realized volatility, its realized skewness, and its value-at-risk. We...

Asset prices undergo long swings that revolve around benchmark levels. In currency markets, fluctuations involve real exchange rates that are highly persistent and that move in near-parallel fashion with nominal rates. The inability to explain these two regularities with one model has been...

We propose a unified framework for estimating integrated variances and covariances based on simple OLS regressions, allowing for a general market microstructure noise specification. We show that our estimators can outperform, in terms of the root mean squared error criterion, the most recent and...

Recent research has revealed a wealth of information about the microeconomics of currency markets and thus the determination of exchange rates at short horizons. This information is valuable to us as scientists since, like evidence of macroeconomic regularities, it can provide critical guidance...

A stylized fact is that realized variance has long memory. We show that, when the instantaneous volatility is driven by a fractional Brownian motion, the integrated variance is characterized by long-range dependence. As a consequence, the realized variance inherits this property when prices are...

We propose a nonparametric approach to the estimation and testing of structural change in time series regression models. Under the null of a given set of the coefficients being constant, we develop estimators of both the nonparametric and parametric components. Given the estimators under null...

The finite sample properties of the state space methods applied to long memory time series are analyzed through Monte Carlo simulations. The state space setup allows to introduce a novel modeling approach in the long memory framework, which directly tackles measurement errors and random level...