The dynamic dependencies in financial market volatility are generally well described by a long-memory fractionally integrated process. At the same time, the volatility risk premium, defined as the difference between the ex-post realized volatility and the market’s ex-ante expectation thereof,...

In this paper we apply the recently developed fractionally cointegrated vector autoregressive (FCVAR) model to analyze price discovery in the spot and futures markets for five non-ferrous metals (aluminium, copper, lead, nickel, and zinc). The FCVAR model allows for long memory (fractional...

We propose a simple model in which realized stock market return volatility and implied volatility backed out of option prices are subject to common level shifts corresponding to movements between bull and bear markets. The model is estimated using the Kalman filter in a generalization to the...

What role does labor play in a firm's market value? We explore this question using a production-based asset pricing model with frictions in the adjustment of both capital and labor. We posit that hiring of labor is akin to investment in capital and that the two interact, with the interaction...

This paper finds empirical support for the habit persistence model of Camp- bell and Cochrane (1999) along both cross sectional and time-series dimensions of the US stock market. GMM estimations show that the model is able to explain a substantial part of the cross sectional variation of returns...

We suggest an iterated GMM approach to estimate and test the consumption based habit persistence model of Campbell and Cochrane (1999), and we apply the approach on annual and quarterly Danish stock and bond returns. For comparative purposes we also estimate and test the standard CRRA model. In...

By using a beginning-of-period timing convention for consumption, and by including the Great Depression years in the analysis, we show that on annual data from 1926 to 2009 a standard contemporaneous consumption risk model goes a long way in explaining the size and value premiums in...