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...

We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward slopes - volatility carry strategy - generates...

It is demonstrated in this paper that adaptive learning in least squares sense may be incapable to reduce, in a satisfactory way, the number of attainable equilibria in a rational expectations model. The model investigated, as an illustration, is the monetary approach to exchange rate...

We develop Residual MisPricing (RMP), an index capturing mispricing relative to a linear benchmark asset pricing model, from the structure imposed by no-arbitrage. RMP is fully conditional and depends only on the returns of basic assets. Return data for several economies reveal that RMP is...

We provide a theoretical framework to uncover in a model-free way the relationship between international stochastic discount factors (SDFs), stochastic wedges, and financial market structures. Exchange rates are in general different from the ratio of international SDFs in incomplete markets, as...

The paper focuses on the relationship of the carry factor and option-implied skewness from a currency portfolio perspective. Although a connection between these two signals has been established in literature already, their interplay and simultaneous use in portfolio construction have not been...

We use macroeconomic characteristics and exposures to Carry and Dollar as instruments to estimate a latent factor model with time-varying betas with the instrumented principal components analysis (IPCA) method by Kelly et al. (2020). On a pure out-of-sample basis, this model can explain up to...

We assess the impact of large-scale asset purchases, commonly known as quantitative easing (QE), conducted by Sveriges Riksbank and the European Central Bank (ECB) on bond risk premia in the Swedish government bond market. Using a novel arbitrage-free dynamic term structure model of nominal and...

We decompose book-to-market (BP) ratio into book-to-intrinsic value (BV) ratio and intrinsic value-to-market (VP) ratio to shed further light on the debate of whether accruals and accrual anomaly are associated more with the risk/growth component (BV) or with the mispricing component (VP). Using...