Using the Dow Jones Industrial Average Index record breaking days as a proxy for market wide attention, we show that as the aggregate stock market intensifies investor attention, stock market response to individual firms’ earnings announcements significantly increases. We hypothesize that there are many channels for the attention spill-over effect and document strong supportive evidence of one ...

In this paper the author formulates and tests an international intertemporal capital asset pricing model in the presence of deviations from purchasing power parity (II-CAPM [PPP]). He finds evidence in favor of at least mild segmentation of international equity markets in which only global market risk appears to be priced. When using the Hansen & Jagannathan (1991, 1997) variance bounds and dis...

This paper explores whether speculative activity can, in practice, generate the ARCHtype behavior found in financial time series. Specifically, G7 equity market indices are examined for evidence of a dynamic whereby speculative interest is self-sustaining – that is, markets can become “hot”. A straightforward model, taken from Faruqee and Redding [9], generates some testable implications of the...

This study investigates whether intraday returns contain important information for forecasting daily volatility. Whereas in the existing literature volatility models for daily returns are improved by including intraday information such as the daily high and low, volume, the number of trades, and intraday returns, here the volatility of intraday returns is explicitly modelled. Daily volatility f...

We estimate and test the conditional version of an International Capital Asset Pricing Model using a parsimonious multivariate GARCH process. Since our approach is fully parametric, we can recover any quantity that is a function of the first two conditional moments. Our findings strongly support a model which includes both market and foreign exchange risk. However, both sources of risk are only...

This paper tests for uncovered interest parity (UIP) using daily data for 23 developing and developed countries during the crisis-strewn 1990s. We find that UIP works better on average in the 1990s than in previous eras in the sense that the slope coefficient from a regression of exchange rate changes on interest differentials yields a positive coefficient (which is sometimes insignificantly di...

Recent research has revealed a wealth of information about the microeconomics of currency markets and thus the determination of exchange rates at short horizons. This information should help in designing exchange-rate models. This paper analyzes an existing model that was previously demonstrated to be consistent with most of the major puzzles that have emerged under floating rates. It shows tha...

This paper attempts to assess the Europe-wide systemic risk potential in banking. We employ a bivariate GARCH model to estimate conditional correlations between European bank stock indices. These correlations are used as an indication for the interdependencies amongst the banking business and hence for the systemic risk potential. We employ several tests to assess the development of the systemi...

We estimate the exposure of emerging-market companies to fluctuations in their domestic exchange rates. We use an instrumental-variable approach that identifies the total exposure of a company to exchange-rate movements, yet abstracts from the influence of confounding macroeconomic shocks. We find the impact of depreciations on emerging-market stock returns is overwhelmingly negative. Since we ...

Abstract This paper focuses on emerging market government bonds issued in local currency with different maturities. Foreign investors face interest rate, currency, and credit risks. We consider the entire term structure of carry trade returns find that, while default premium does not contribute to strategies, contribution rate risk, captured by premium, is large increases maturity. introduce ri...