This paper proposes two dimension-reduction and forecasting quantile methods (i.e., the quantile group lasso and the quantile group SCAD models) to predict carbon futures returns and investigate the predictability of a comprehensive group of factors including market fundamental variables and...

The traditional fund-by-fund performance evaluation method suffers from various econometric problems such as multiple hypothesis testing, time-varying coefficients, cross-sectional dependence, etc. To overcome these problems, we tailor three high-dimensional cross-sectional tests to empirically...

This paper investigates the relative importance of hot money in bank credit and portfolio flows from the US to 18 emerging markets over the period 1988-2012. We deploy state-space models à la Kalman filter to identify the unobserved hot money as the temporary component of each type of flow. The...

This paper examines the role played by cross-border equity, bond and bank credit flows versus international trade in the transmission of the U.S. financial crisis to equity markets worldwide. We estimate vector autoregressive models with exogenous global factors using monthly data on 36 emerging...

We examine the problem of an investor who trades in a market with unobservable regime shifts. The investor learns from past prices and is subject to transaction costs. Our model generates significantly larger liquidity premia compared to a benchmark model with observable market shifts. The...

We generate large liquidity premia endogenously from the interaction of transaction costs with convexity in preferences, offering a novel explanation for a longstanding puzzle. We derive this result from the dynamic portfolio problem of mutual fund managers facing either convex flows or year-end...

The portfolio-rebalancing theory of Hau and Rey (2006) yields the uncovered equity parity (UEP) prediction that local-currency equity return appreciation is offset by currency depreciation. Vector autoregressive model estimation and tests for eight Asian emerging markets using daily data reveal...