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...

The uncovered interest rate parity equation is the cornerstone of most models in international macro. However, this equation does not hold empirically since the forward discount, or interest rate differential, is negatively related to the subsequent change in the exchange rate. This forward...

In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labor relations. We show that this view implies that income share variations represent a risk factor of ¯rst-order...

This paper tests for the existence of contagion during the 1997/98 Asian crisis. We interpret contagion as a significant change in the way that country-specific shocks are transmitted across international stock markets. Using the full-information framework of Favero and Giavazzi (2002) we find...

We shed new light on the negative relationship between real stock returns or real interest rates and (i) post inflation, (ii) expected inflation, (iii) unexpected inflation and (iv) changes in expected inflation. Using the structural vector autoregression methodology, we propose a decomposition...

This paper presents a simple approach to the pricing of options on spread and some arguments in favor of modelling the spread using its two components instead of the spread itself. We show that, even in a simple Gaussian setting, the spread should not be modelled directly, and that convergence...

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...

This paper introduces a general framework for market models, named Market Model Approach, through the concept of admissible sets of for-ward swap rates spanning a given tenor structure. We relate this concept to results in graph theory by showing that a set is admissible if and only if the...

This paper provides a simple model of the rescheduling of debt following a sovereign default as a bond exchange. In case of default, the sovereign offers a new bond with lower coupon and principal.The debtors accept the offer if the value of the new bonds is higher than the proceedings of the...