A consensus is emerging that returns to the currency carry trade are driven by two factors. One of these is clearly consumption risk but there is disagreement about the identity of the remaining factor. This paper bolsters the case for volatility being the unknown factor. A structural model that...

The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. It successfully explains the high volatility of nominal exchange rates without recourse to sticky prices and...

The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. It successfully explains (i) the high volatility of nominal and real exchange rates, (ii) the high correlation...

The two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. The 'puzzles' in the forward market are re-examined. The model is able to account for: (a) the low volatility of the forward...

We construct a new class of hybrid exchange rate models, combining macroeconomic fundamentals from a conventional Taylor rule with information from the foreign exchange interdealer market. We provide evidence that hybrid models have a superior model fit and produce more accurate in-sample...

Using a large and representative dataset of commodity trading advisors (CTAs), we provide compelling evidence that CTAs generate significant net excess returns of at least 4.1% annually; that approximately 64% of the funds have positively skewed returns; and that there is considerable...

We study the relation between limit order flow, market order flow and returns. We develop a model where market-makers face inventory risk and adverse selection and show how prices depend on market and limit order flows. In the model, market-makers receive information through trade with customers...

We develop a simple life cycle optimizing model of retirement and savings. We show that, in theory, higher incomes lead to earlier retirement and higher savings while longer life spans lead to later retirement and lower savings. We calibrate our model using data from the United States and find...

Dealers are intermediaries between different market segments. A dealer typically maintains a network of customer relationships (B2C) and simultaneously participates in an inter-dealer market (B2B) which allows him to manage his inventory. We represent this market interface role in a new dynamic...

European sovereign bond trading occurs in a highly liquid interdealer market and a parallel dealer-customer market in which buy-side financial institutions request quotes from primary dealers. Synchronized price data from both market segments allow us to compare market quality. We find that...