Working Papers / Published Papers / Data
Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? with Hanno Lustig. October 2015, pdf.
  • Market incompleteness cannot solve the FX volatility, cyclicality, and risk premium puzzles at the same time.
The Volatility of International Capital Flows and Foreign Assets, with Winston Dou. September 2015, pdf.
  • A two-country model with incomplete markets that replicates equity risk premia in order to study equity and debt capital flows.
Common Factors, Order Flows, and Exchange Rate Dynamics, with Valere Fourel, Dagfinn Rime, Lucio Sarno, and Maik Schmeling. July 2015, pdf.
  • Common, price-based factors describe exchange rate dynamics at intra-day frequencies as well as the quantity-based order flows.
Uncertainty Betas and International Capital Flows, with Francois Gourio and Michael Siemer. December 2014, pdf.
  • Capital inflows respond to both systematic and country-specific shocks to volatility, and they respond more in high uncertainty beta countries.
The International CAPM Redux, with Francesca Brusa and Tarun Ramadorai. First version: June 2014; This version: November 2014, pdf (appendix)
  • Three factors (equity, dollar, and carry) describe the cross-section of equity returns from 46 developed and emerging countries from 1976 to the present.
Nominal Exchange Rate Stationarity and Long-Term Bond Returns, with Hanno Lustig and Andreas Stathopoulos. First version: May 2013; This version: August 2015, pdf (appendix)
  • Long-term bond returns behave as if nominal exchange rates were stationary in levels, contrary to the academic consensus.
Sovereign Risk Premia, with Nicola Borri, May 2015 pdf (appendix, data). Winner of the WRDS Best Paper Award, EFM 2010.
  • Sovereign optimal defaults and bond prices depend not only on the borrowers' economic conditions, but also on the lenders' time-varying risk aversion.
Crash Risk in Currency Markets, with Emmanuel Farhi, Samuel Fraiberger, Xavier Gabaix and Romain Ranciere, May 2014, pdf (appendix).
  • After the fall of 2008, currency options prices exhibit a sharp increase in tail risk, similar to the emergence of the smirk in equity options after the 1987 crash. We estimate a simple structural model that includes both Gaussian and disaster risk.


Published Papers


The Share of Systematic Risk in Bilateral Exchange Rates, July 2015, Journal of Finance, forthcoming pdf (appendix, data)
  • Two high-minus-low risk factors account for 18% to 80% of the monthly changes in bilateral exchange rates. SDFs must feature two global shocks.
Countercyclical Currency Risk Premia, with Hanno Lustig and Nikolai Roussanov, Journal of Financial Economics, March 2014, Vol. 111 (3), pp. 527--553, pdf.
  • The average forward discount and U.S. industrial production growth rates forecast up to 25% of the dollar return variation at the one-year horizon.

The Wealth-Consumption Ratio, with Hanno Lustig and Stijn Van Nieuwerburgh, Review of Asset Pricing, June 2013, Vol. 3 (1), pp 38--94, pdf.
  • The consumption risk premium is only 2.2 percent. Most of wealth is human wealth. Events in bond markets, not stock markets, matter most for understanding fluctuations in total wealth.

International Risk Cycles, with Francois Gourio and Michael Siemer, Journal of International Economics, March 2013, Vol. 89, pp. 471-484, pdf (appendix).
  • A two-country real business cycle model generates a low correlation between relative consumption growth and exchange rates, a large forward premium, and "excess comovement" of asset prices relative to quantities.

Business Cyclical Variation in the Risk-Return Trade-off, with Hanno Lustig, Journal of Monetary Economics, December 2012, Vol. 59, pp. 35-49, pdf (appendix).
  • Value-maximizing managers face much higher risk-adjusted costs of capital in their investment decisions during recessions than expansions.

Common Risk Factors in Currency Markets, with Hanno Lustig and Nikolai Roussanov, Review of Financial Studies, November 2011, Vol. 24 (11), pp. 3731-3777, (pdf, data). Winner of the Terker Prize in Investment Research, 2009.
  • A `slope' factor accounts for most of the cross-sectional variation in average excess returns between high and low interest rate currencies. Carry trade investors load up on global volatility risk.

The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk: A Reply, with Hanno Lustig. American Economic Review, December 2011, Vol. 101, pp. 3477-3500 (pdf).

  • The consumption growth beta of an investment strategy that goes long in high interest rate currencies and short in low interest rate currencies is large and significant. Consumption and market betas increase during recessions and times of crisis.

Information Shocks, Liquidity Shocks, Jumps, and Price Discovery: Evidence from the U.S. Treasury Market, with George J. Jiang and Ingrid Lo, Journal of Financial and Quantitative Analysis, Vol. 46, No. 2, Apr. 2011, pp. 527–551 (pdf).
  • Relative importance of macroeconomic news announcements versus variation in market liquidity in explaining the observed jumps in the U.S. Treasury market.

Long-Run Risk, the Wealth-Consumption Ratio, and the Temporal Pricing of Risk, with Ralph Koijen, Hanno Lustig, and Stijn Van Nieuwerburgh, American Economic Review, Papers and Proceedings, May 2010, Vol. 100, No 2, pp 552-556 (pdf). Appendix (pdf).
  • The long-run risk model, which is successful at matching the wealth-consumption ratio, high equity risk premium and the nominal yields at short maturities implies too little (much) variation in the martingale component of the nominal (real) pricing kernel.

A Habit-Based Explanation of the Exchange Rate Risk Premium, First Version: November 2003, This Version: October 2008, pdf. Journal of Finance, February 2010, Vol. 65, No 1, pp 123-145. Appendix (pdf)
  • The first fully rational explanation of the the uncovered interest rate parity / forward premium puzzle.

The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk, with Hanno Lustig. American Economic Review, March 2007, vol. 97, No 1, pp 89-117, pdf. Data

  • We sort foreign currency returns into portfolios based on foreign interest rates, and we test the Euler equation of a domestic investor who invests in these currency portfolios.

Investing in Foreign Currency is like Betting on your Intertemporal Marginal Rate of Substitution, with Hanno Lustig. Journal of the European Economic Association, Papers and Proceedings, April-May 2006, Vol. 4, No. 2-3, pp 644-655, pdf.

  • These bets are very risky if your neighbor's IMRS is not correlated with yours, but they provide a hedge when his IMRS is highly correlated and more volatile.

Home Page  |  Research  |   Teaching  |  Curriculum Vitae