The non-stationarity of many macroeconomic time series has lead to an increased demand for economic models that are able to generate fragile equilibria. For instance, in this literature the natural unemployment rate is allowed to shift over time depending on past unemployment. Actually, many...

Three mutually uncorrelated economic disturbances that we measure empirically explain 85% of the quarterly variation in real stock market wealth since 1952. A model is employed to interpret these disturbances in terms of three latent primitive shocks. In the short run, shocks that affect the...

This paper studies the asymmetric behavior of negative and positive values of analysts' earnings revisions and links it to the conservatism principle of accounting. Using a new three-state mixture of log-normals model that accounts for differences in the magnitude and persistence of positive,...

We analyse order placement strategies in a limit order market, using data on the order flow from the Stockholm Stock Exchange. Traders submitting market or limit orders trade off the order price against both the execution probability and the winner’s curse risk associated with different order...

This paper considers the evidence for volatility clustering and transmission in six bilateral Deutsche mark ERM exchange rates. Data on daily exchange rate changes are described by a mixture of two normal distributions. One of these contains observations of volatile exchange rate changes while...

Returns in financial assets show consistent excess kurtosis, indicating the presence of large fluctuations not predicted by Gaussian models. Mandelbrot (1963) first proposed the idea that price changes distributed according to a Lévy stable law. The unique feature of Lévy-stable distributions...

In this Paper we investigate the ability of different models to produce useful VaR-estimates for exchange rate positions. We make a distinction between models that include sophisticated tail properties and models that do not. The former type of models often leads to too extreme VaR-estimates,...

The micro evidence indicates that small firms grow faster than big firms. I argue that this relationship between the expected growth rate of a firm and its size may provide a micro foundation for the well-known high degree of persistence of shocks to aggregate output. The logic goes as follows....

The single most important policy-induced innovation in the international financial system since the collapse of the Bretton-Woods regime is the institution of the European Monetary Union. This paper provides an account of how the process of financial integration has promoted financial...

Theoretical asset pricing models routinely assume that investors have heterogeneous information. We provide direct evidence of the importance of information asymmetry for asset prices and investor demands using plausibly exogenous variation in the supply of information caused by the closure or...