It is widely believed that correlations between international equity markets tend to increase in highly volatile bear markets. This has led some to doubt the benefits of international diversification. This article solves the dynamic portfolio choice problem of a US investor faced with a...

We ask whether stock returns in France, Germany, the UK and the US are predictable by three instruments: the dividend yield, the earnings yield and the short rate. The predictability regression is suggested by a present value model with earnings growth, payout ratios and the short rate as state...

We study the economic sources of stock-bond return comovement and its time variation using a dynamic factor model. We identify the economic factors employing structural and non-structural vector autoregressive models for economic state variables such as interest rates, (expected) inflation,...

Innovations in volatility constitute a potentially important asset pricing risk factor that can be tested using the return on variance swaps. We characterize the exposures of returns on equities, bonds and currencies in all regions of the world to U.S. based equity variance risk. We explore...

We study the economic sources of stock-bond return comovement and its time variation using a dynamic factor model. We identify the economic factors employing structural and non-structural vector autoregressive models for economic state variables such as interest rates, (expected) inflation,...

This paper successively introduces variable velocity, durability and habit persistence in a standard two-country general equilibrium model and explores their effects on the variability of exchange rate changes, forward premiums and the foreign exchange risk premium. A new feature of the model is...

Using non-parametric estimation methods, various authors have shown distinct non-linearities in the drift and volatility function of the US short rate, which are inconsistent with standard affine term structure models. We document how a regime-switching model with state dependent transition...

Recently much progress has been made in developing optimal portfolio choice models accomodating time-varying opportunity sets, but unless investors are unreasonably risk averse, optimal holdings include unreasonably large equity positions. One reason is that most studies assume investors behave...

This paper examines the econometric performance of regime switching models for interest rate data from the US, Germany and the UK. There is strong evidence supporting the presence of regime switches but univariate models are unlikely to yield consistent estimates of the model parameters....

It is widely believed that correlations between international equity markets tend to increase in highly volatile bear markets. This has led some to doubt the benefits of international diversification. This article solves the dynamic portfolio choice problem of a US investor faced with a...