This article proposes a flexible but parsimonious specification of the joint dynamics of market risk and return to produce forecasts of a time-varying market equity premium. Our parsimonious volatility model allows components to decay at different rates, generates mean-reverting forecasts, and...

This paper investigates the dynamic and portfolio effects in a multi-currency hedging problem which incorporates both risk-reduction and speculative components for the futures demand. We model the joint evolution of daily spot portfolio returns and log-differences of the corresponding futures...

This paper investigates nonlinear features of FX volatility dynamics using estimates of daily volatility based on the sum of intraday squared returns. Measurement errors associated with using realized volatility to estimate ex post latent volatility imply that standard time series models of the...