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...

We provide the first detailed empirical evidence on the financialization of intraday trading activity in the world's largest commodity market and show that this development had a first-order positive impact on market liquidity and pricing efficiency. We use a rich regulatory dataset to show that...

This paper documents a new stylised fact in foreign exchange markets: intraday currency returns display prolonged reversals around the major benchmark fixings, characterised by an appreciation of the U.S. dollar pre-fixing and a depreciation thereafter. Tracing returns around the clock, the...

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...

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...

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...

We present a simple framework in which both the exchange rate disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell...

Macroeconomic models of equity and exchange rate returns perform poorly. The proportion of daily returns that these models explain is essentially zero. Instead of relying on macroeconomic determinants, we model equity price and exchange rate behavior based on a concept from microstructure -...