Since the term structure of interest rates embodies information about future economic activity, we extract relative Nelson-Siegel (1987) factors from cross-country yield curve differences to proxy expected movements in future exchange rate fundamentals. Using monthly data for the United Kingdom,...

This paper offers and tests a unique explanation for the exchange rate determination puzzle. It is not that exchange rates are unrelated to fundamentals, but rather when fundamentals undergo persistent changes it becomes important to measure their effect in terms of how they change relative to...

Este artículo desarrolla un modelo de valoración de activos en tiempo continuo para la economía global. En el artículo demuestro que un mercado financiero integrado, los retornos de los activos domésticos tienen un componente que compensa a los inversionistas por la exposición a riesgo...

Electronic trading has transformed foreign exchange markets over the past decade, and the pace of innovation only accelerates. This formerly opaque market is now fairly transparent and transaction costs are only a fraction of their former level. Entirely new agents have joined the fray,...

In this article, we examine the presence of volatility spillovers between nominal exchange rates and stock returns in three MENA countries: Egypt, Morocco and Turkey. The multivariate GARCH model we use does not produce evidence of cross-market effects for the general stock indices returns....

We describe a novel currency investment strategy, the ‘dollar carry trade,’ which delivers large excess returns, uncorrelated with the returns on well-known carry trade strategies. Using a no-arbitrage model of exchange rates we show that these excess returns compensate U.S. investors for...

Research on foreign exchange market microstructure stresses the importance of order flow, heterogeneity among agents, and private information as crucial determinants of short-run exchange rate dynamics. Microstructure researchers have produced empirically-driven models that fit the data...

We construct a multi-country affine term structure model that contains unspanned macroeconomic and foreign exchange risks. The canonical version of the model is derived and is shown to be easy to estimate. We show that it is important to impose restrictions (including global asset pricing, carry...

Although the effects of economic news announcements on asset prices are well established, these relationships are unlikely to be stable. This paper documents the time variation in the responses of yield curves and exchange rates using high frequency data from January 2000 through August 2011....

Looking back, 30 years of research on foreign exchange (FX) market microstructure reveals that order flow, heterogeneity among agents, and private information are crucial determinants of short-run exchange rate dynamics. Microstructure researchers have produced empirically-driven models that fit...