We define risk spillover as the dependence of a given asset variance on the past covariances and variances of other assets. Building on this idea, we propose the use of a highly flexible and tractable model to forecast the volatility of an international equity portfolio. According to the risk...

Contrary to the common wisdom that asset prices are hardly possible to forecast, we show that high and low prices of equity shares are largely predictable. We propose to model them using a simple implementation of a fractional vector autoregressive model with error correction (FVECM). This model...

Arbitrage normally ensures that covered interest parity (CIP) holds. Until recently, excess profits, if any, were documented to last merely seconds and reach a few pips. Instead, this paper finds that following the Lehman bankruptcy, these were large, persisted for months and involved strategies...

In modelling and forecasting volatility, two main trade-offs emerge: mathematical tractability versus economic interpretation and accuracy versus speed. The authors attempt to reconcile, at least partially, both trade-offs. The former trade-off is crucial for many financial applications,...

We study high-frequency exchange rate movements over the sample 1993-2006. We document that the (Swiss) franc, euro, Japanese yen and the pound tend to appreciate against the U.S. dollar when (a) S&P has negative returns; (b) U.S. bond prices increase; and (c) when currency markets become more...

We investigate the effects of macroeconomic announcements on the realized correlation between bond and stock returns. Our results deliver insights into the dominating drivers of bond-stock comovements. We find that it is not so much the surprise component of the announcement, but the mere fact...

We analyze the financial integration of the new European Union (EU) member states' stock markets using the negative (positive) coexceedance variable that counts the number of large negative (large positive) returns on a given day across the countries. We use a multinomial logit model to...

This paper sheds light on a puzzling pattern in foreign exchange markets: Domestic currencies appreciate (depreciate) systematically during foreign (domestic) working hours. These time-of-day patterns are statistically and economically highly significant. They pervasively persist across many...

In this paper we analyze high-frequency movements in Swiss financial markets in reaction to real-time communication by the Swiss National Bank. Our analysis of central bank communication encompasses official speeches and interviews, not only monetary policy announcements. We examine the...

I analyze the price discovery, liquidity provision, and transaction-cost components driven by the real-time firm-specific news at the Paris Bourse. I find that the news impact depends on which type of news bulletin is released. Only news items causing extreme price disruptions such as earnings...