We introduce Indirect Robust Generalized Method of Moments (IRGMM), a new simulation-based estimation methodology, to model short-term interest rate processes. The primary advantage of IRGMM relative to classical estimators of the continuous-time short-rate diffusion processes is that it...

We develop a general equilibrium model of a production economy which has a risky production technology as well as a growth option to expand the scale of the productive sector of the economy. We show that when confronted with growth options, the representative consumer may sharply alter...

Morck, Yeung and Yu (MYY, 2000) show that R2 and other measures of stock market synchronicity are higher in countries with less developed financial systems and poorer corporate governance. MYY and Campbell, Lettau, Malkiel and Xu (2001) also find a secular decline in R2 in the United States over...

In this paper, we examine formally Keynes' idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs. In a dynamic noisy rational expectations model, higher order expectations add an additional term, which we call the...

We examine the effect of regularly scheduled macroeconomic announcements on the beliefs and preferences of participants in the U.S. Treasury market by comparing the option-implied state-price density (SPD) of bond prices shortly before and after the announcements. We find that the announcements...

Empirical evidence shows that observed macroeconomic fundamentals have little explanatory power for nominal exchange rates (the exchange rate determination puzzle). On the other hand, the recent \microstructure approach to exchange rates" has shown that most exchange rate volatility at short to...

The informational content of changing risk for dynmaic asset allocation is analyzed in order to investigate its importance in determining expected index returns. We consider a class of optimal dynamic strategies taking into account both changing risk and expected returns that vary accordingly to...

Individual and collective security are among the gauges of civilization, and at the same time they constitute necessary conditions for its progress. Their systematic pursuit is relatively recent among nations: prompted by the dreadful lessons of the 20th century, they took their present shape...

We consider a nonparametric method to estimate conditional expected shortfalls, i.e. conditional expected losses knowing that losses are larger than a given loss quantile. We derive the asymptotic properties of kernal estimators of conditional expected shortfalls in the context of a stationary...

This paper derives a general framework for collateral risk control determination in repurchase transactions or repos. The objective is to treat consistently heterogeneous collateral so that the collateral taker has a similar risk exposure whatever the collateral pledged. The framework measures...