This paper introduces the idea that the variances or correlations in financial returns may all change conditionally and slowly over time. A multi-step local dynamic conditional correlation model is proposed for simultaneously modelling these components. In particular, the local and conditional...

We propose a new model for the variance between multiple time series, the Regime Switching Dynamic Correlation. We decompose the covariances into correlations and standard deviations and the correlation matrix follow a regime switching model; it is constant within a regime but different across...

This study examines the volatility and correlation and their relationships among the euro/US dollar exchange rates, the S&P500 equity indices, and the prices of WTI crude oil and the precious metals (gold, silver, and platinum) over the period 2005 to 2012. Our model links the univariate...

The paper estimates and examines the empirical plausibiltiy of asset pricing models that attempt to explain features of financial markets such as the size of the equity premium and the volatility of the stock market. In one model, the long run risks model of Bansal and Yaron (2004), low...

Empirical evidence shows that observed macroeconomic fundamentals have little explanatory power for nominal exchange rates (the exchange rate determination puzzle). On the other hand, the recent \microstructure approach to exchange rates" has shown that most exchange rate volatility at short to...

The informational content of changing risk for dynmaic asset allocation is analyzed in order to investigate its importance in determining expected index returns. We consider a class of optimal dynamic strategies taking into account both changing risk and expected returns that vary accordingly to...

Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the relationship over various horizons. We find the relation to be further complicated by the sign and consistency of the past return that...

The use of absolute return volatility has many modelling benefits. An illustration is given for the market risk measure, minimum capital requirements.

We examine formally Keynes' idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs. Higher order expectations add an additional term to a standard asset pricing equation. We call this the higher order wedge, which...

Recent empirical research shows that a reasonable characterization of federal-funds-rate targeting behavior is that the change in the target rate depends on the maturity structure of interest rates and exhibits little dependence on lagged target rates. See, for example, Cochrane and Piazzesi...