The behavior of Eurocurrency returns across different holding periods and monetary regimes

Article Abstract:

Recent empirical studies of the risk premium across foreign exchange and other asset markets such as equity and longer term bonds have found conflicting evidence about the latent variable model restrictions of the consumption-based intertemporal capital asset pricing model. While studies using data for holding periods of one month or less generally respect the model, evidence using three-month holding periods indicates that the model cannot be rejected when including the returns on long relative to short deposit rates. This paper investigates the sources of differences in results using returns on foreign exchange and Eurocurrency deposits at three different maturities. (Reprinted by permission of the publisher.)

Research, Foreign exchange market

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Do expected shifts in inflation affect estimates of the long-run Fisher relation?

Article Abstract:

Recent empirical studies suggest that nominal interest rates and expected inflation do not move together one-for-one in the long run, a finding at odds with many theoretical models. This article shows that these results can be deceptive when the process followed by inflation shifts infrequently. We characterize the shifts in inflation by a Markov switching model. Based upon this model's forecasts, we re-examine the long-run relationship between nominal interest rates and inflation. Interestingly, we are unable to reject the hypothesis that in the long run nominal interest rates reflect expected inflation one-for-one. (Reprinted by permission of the publisher.)

Inflation (Finance), Interest rates, Inflation (Economics)

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The issue decision of manager-owners under information asymmetry

Article Abstract:

A firm must issue common stock in order to undertake a new investment, and the firm's manager-owners can value the firm more accurately than the market. The ability of the manager-owners to trade in the firm's shares during the issue (a) reduces the investments that are foregone because of the market's mispricing the firm's shares, (b) changes the size and direction of the stock price change when the firm announces a new stock issue, and (c) changes the market value of the firm before and after the issue announcement, whether or not it decides to issue. (Reprinted by permission of the publisher.)

Corporations, Valuation

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