Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulatedmoments estimator for option volatilities described in Mizrach (2002); the second is a new approach...

Time series evidence on exchange rates has been unable to reject the random walk hypothesis. A simple structural model that accounts for target zone nonlinearities provides conclusive evidence of mean reversion in EMS exchange rates.

This paper provides a comprehensive framework for comparing predictors of univariate time series in the mean square norm. Initially, the forecast errors are assumed to be unbiased, independent, and normally distributed. Each of these is progressively relaxed. A new heteroscedasticity and...

A stationary stochastic process is defined to be locally independent if it eventually becomes independent of pastrealizations. I develop a simple nonparametric test for this condition. Size and power comparisons favor this statistic over the one proposed by Brock, Dechert and Scheinkman (1987)...

This paper documents the significant role of ECNs in forming the inside market in NASDAQ securities. We argue that the ECNs need to be exposed to market orders through the SOES system.

Option prices seem to behave in ways inconsistent with the Black-Scholes model. Implied volatility varies with the strike price in a parabolic shape that is often called the volatility 'smile.' My objective in this paper is to identify implied probability distributions that might explain this...

This paper examines maximum likelihood estimation via hill climbing and the expectations maximization (EM) algorithm in the context of Hamilton's Markov switching framework. The techniques are explained in detail and are followed by a discussion of both analytic and computational issues. Both...