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When several investors with different risk aversions trade competitively in a capital market, the allocation of wealth fluctuates randomly between them and acts as a state variable against which each market participant will want to hedge. This hedging motive complicates the investors’...
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An evaluation of the performance of foreign exchange hedges shows that, in a mean-variance framework, fully hedging exchange risk does not improve the performance of a portfolio of international equities; however, dynamic strategies which incorporate market information on risk premiums in the...
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The paper shows how a cash-in-advance model of money demand can be written in a way that combines a simple, yet empirically defensible, money demand equation with tractability in asset pricing. Return premia are determined as in the standard barter exchange model, except that a short-term...
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