In this paper, we develop a momentum trading strategy based on the low frequency trend component of the spot exchange rate. Using, alternately, kernel regression and the high-pass filter of Hodrick and Prescott (1997), we recover the non-linear trend in the monthly exchange rate and use...

The expectations hypothesis of the term structure has been decisively rejected by a large empirical literature that spans several decades. In this paper, using a newly constructed dataset of synthetic zero coupon bond yields, we show that evidence against the expectations hypothesis became very...

There has recently been renewed interest in the intraday range (defined as the difference between the intraday high and low prices) as a measure of local volatility. Recent studies have shown that estimates of volatility based on the range are significantly more efficient than estimates based on...

Models of the time-varying conditional minimum-variance hedge ratio (MVHR) typically do not provide a significant improvement in terms of hedging performance over the unconditional MVHR model. In view of the widely documented success of conditional volatility models (on which models of the...

In this paper, we show that although minimum-variance hedging unambiguously reduces the standard deviation of portfolio returns, it tends to increase portfolio kurtosis and consequently the effectiveness of hedging in terms of a more general measure of risk such as VaR is uncertain. We compare...

A number of financial variables have been shown to be effective in explaining the time-series of aggregate equity returns in both the UK and the US. These include, inter alia, the equity dividend yield, the spread between the yields on long and short government bonds, and the lagged equity...

In this paper, we propose a method for hedge fund replication using a factor-based model supplemented with a series of risk and return constraints that implicitly target all the moments of the hedge fund return distribution. We use the approach to replicate the monthly returns of ten broad hedge...

In this paper, we propose a gold price index that enables market participants to separate the change in the ‘intrinsic' value of gold from changes in global exchange rates. The index is a geometrically weighted average of the price of gold denominated in different currencies, with weights that...

The propensity of households to invest in stocks is lower than implied by Expected Utility Theory. One explanation suggested in the literature is that stocks entail ambiguity and investors are ambiguity averse. We test this hypothesis, measuring participation using equity fund flows and...

Existing accounting-based forecasting models of earnings either do not fully consider information that is contained in stock prices or use an ad hoc specification that is not based on rigorous valuation theory. In this paper, we develop an earnings forecasting model built on the theoretical...