An empirical comparison of alternative models of the short-term interest rate

Article Abstract:

We estimate and compare a variety of continuous-time models of the short-term riskless rate using the Generalized Method of Moments. We find that the most successful models in capturing the dynamics of the short-term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate. A number of well-known models perform poorly in the comparisons because of their implicit restrictions on term structure volatility. We show that these results have important implications for the use of different term structure models in valuing interest rate contingent claims and in hedging interest rate risk. (Reprinted by permission of the publisher.)

Interest rates, Financial markets

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Does money explain asset returns? Theory and empirical analysis

Article Abstract:

A cash-in-advance model of a monetary economy is used to derive a money-based CAPM (M-CAPM), which allows us to implement tests of asset pricing restrictions without consumption data. A test as in Fama and MacBeth of the model suggests that the money betas have some explanatory power for the cross-sectional variation of expected returns; however, the model is rejected using conditional information. Consistent with our predictions, estimates of the curvature parameter are lower than those of the consumption CAPM (C-CAPM) and pricing errors of the M-CAPM tend to be smaller than those of the C-CAPM. (Reprinted by permission of the publisher.)

Monetary policy, Return on investment, Capital assets pricing model, Capital asset pricing model, Rate of return

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Can tax-loss selling explain the January seasonal in stock returns?

Article Abstract:

The tax-loss selling hypothesis, which is used to explain the strong January seasonal in stock returns, is investigated. The tax loss selling hypothesis states that the desire of investors to realize their losses before the new tax year creates a downward pressure on stock prices near the end of the year and a price rise in the beginning of the new year. Empirical tests show that the year-end price pressure is associated with both short- and long-term losses. These results are inconsistent with the optimal tax trading model of the January seasonal.

Methods, Economic aspects, Finance, Stocks, Forecasts and trends, Economic forecasting, Tax deductions, Business cycles, Stock price forecasting, Financial research

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