This paper tests if real and financial linkages between countries can explain why movements in the world's largest markets often have such large effects on other financial markets, and how these cross-market linkages have changed over time. It estimates a factor model in which a country's market...

Uncovered interest parity (UIP) has been almost universally rejected in studies of exchange rate movements, although there is little consensus on why it fails. In contrast to previous studies, which have used relatively short-horizon data, we test UIP using interest rates on longer-maturity...

We re-examine the Fama (1984) puzzle - the finding that ex post depreciation and interest differentials are negatively correlated, contrary to what theory suggests - for eight advanced country exchange rates against the US dollar, over the period up to February 2016. The rejection of the joint...

We present an alternative expectation formation mechanism that helps rationalize well known asset pricing anomalies, such as the predictability of excess returns, excess volatility, and the equity-premium puzzle. As with rational expectations (RE), the expectation formation mechanism we consider...

In asset pricing, estimation risk refers to investor uncertainty about the parameters of the return or cashflow process. We show that with estimation risk the observable properties of prices and returns can differ significantly from the properties perceived by rational investors. In particular,...