http://hdl.handle.net/2451/25931 2026-04-14T15:06:21Z 2026-04-14T15:06:21Z Boudoukh, Jacob Richardson, Matthew Whitelaw, Robert F. http://hdl.handle.net/2451/27382 2008-06-04T06:01:29Z 2005-11-16T00:00:00Z

Title: The Information in Long-Maturity Forward Rates: Implications for Exchange Rates and the Forward Premium Anomaly Authors: Boudoukh, Jacob; Richardson, Matthew; Whitelaw, Robert F. Abstract: The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials have statistically and economically significant forecast power for annual exchange rate movements, both in- and out-of-sample, and the signs and magnitudes of the corresponding coefficients are consistent with economic theory. Forward interest rates also forecast future spot interest rates and future inflation. Thus, we attribute much of the forward premium anomaly to the anomalous behavior of shortterm interest rates, not to a breakdown of the link between fundamentals and exchange rates.

2005-11-16T00:00:00Z Boudoukh, Jacob Richardson, Matthew Whitelaw, Robert F. http://hdl.handle.net/2451/27381 2008-06-04T06:01:18Z 2005-11-16T00:00:00Z

Title: The Information in Long-Maturity Forward Rates: Implications for Exchange Rates and the Forward Premium Anomaly Authors: Boudoukh, Jacob; Richardson, Matthew; Whitelaw, Robert F. Abstract: The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials have statistically and economically significant forecast power for annual exchange rate movements, both in- and out-of-sample, and the signs and magnitudes of the corresponding coefficients are consistent with economic theory. Forward interest rates also forecast future spot interest rates and future inflation. Thus, we attribute much of the forward premium anomaly to the anomalous behavior of shortterm interest rates, not to a breakdown of the link between fundamentals and exchange rates.

2005-11-16T00:00:00Z Rosenberg, Joshua V. Engle, Robert F. http://hdl.handle.net/2451/26916 2008-05-30T06:29:59Z 1999-03-01T00:00:00Z

Title: Empirical pricing kernels Authors: Rosenberg, Joshua V.; Engle, Robert F. Abstract: This paper investigates the empirical characteristics of investor risk aversion over equity return states by estimating a daily semi-parametric pricing kernel. The two key features of this estimator are: (1) the functional form of the pricing kernel is estimated semi-parametrically, instead of being prespecified and (2) the pricing kernel is re-estimated on a daily basis, allowing measurement of time-variation in riskaversion over equity return states. Important empirical findings of the paper are as follows. Constant relative risk aversion over S&P500 return states is rejected in favor of a model in which relative risk aversion is stochastic. Empirical relative risk aversion over equity return states is found to be positively autocorrelated and positively correlated with the spread between implied and objective volatilities. In addition, the constant relative risk aversion (power utility) pricing kernel is found to underestimate the value of payoffs in large negative return states. An option hedging methodology is developed as a test of the predictive information in the empirical pricing kernel and its associated state probability model. The results of hedging performance tests for out-of-the-money S&P500 index put options indicate that time-varying risk aversion over equity return states is an important factor affecting option prices.

1999-03-01T00:00:00Z Barberis, Nicholas Shleifer, Andrei Wurgler, Jeffrey http://hdl.handle.net/2451/26914 2008-05-30T06:17:25Z 2001-11-01T00:00:00Z

Title: Comovement Authors: Barberis, Nicholas; Shleifer, Andrei; Wurgler, Jeffrey Abstract: A number of studies have identified patterns of positive correlation of returns, or comovement, among different traded securities. We distinguish three views of such co- movement. The traditional "fundamentals" view explains the comovement of securities through positive correlations in the rational determinants of their values, such as cash ows or discount rates. "Category-based" comovement occurs when investors classify different securities into the same asset class and shift resources in and out of this class in correlated ways. A related phenomenon of "habitat-based" comovement arises when a group of investors restricts its trading to a given set of securities, and moves in and out of that set in tandem. We present models of each of the three types of comovement, and then assess them empirically using data on stock inclusions into and deletions from the S&P 500 index. Index changes are noteworthy because they change a stock's category and investor clientele (habitat), but do not change its fundamentals. We find that when a stock is added to the index, its beta and R-squared with respect to the index increase, while its beta with respect to stocks outside the index falls. The converse happens when a stock is deleted. These results are broadly supportive of the category and habitat views of comovement, but not of the fundamentals view. More generally, we argue that these non-traditional views may help explain other instances of comovement in the data.

2001-11-01T00:00:00Z