The paper studies a factor GARCH model and develops test procedures which can be used to test the number of factors needed to model the conditional heteroskedasticity in the considered time series vector. Assuming normally distributed errors the parameters of the model can be straightforwardly estimated by the method of maximum likelihood. Inefficient but computationally simple preliminary esti...

The instability of international financial markets, as exhibited by persistent periodic crises, is an important issue for all market participants. This paper presents an alternative agent-based network theory of financial crises derived from recent developments in complexity science, and applies it to short-term currency crises. The theory, despite being parsimonious, is capable of generating c...

This paper shows that high-frequency, irregularly-spaced, FX data can generate non-normality, conditional heteroskedasticity, and leptokurtosis when aggregated into fixed-interval, calendar time even when these features are absent in the original D.G.P. Furthermore, we introduce a new approach to modeling these high-frequency irregularly spaced data based on the Poisson regression model. The ne...

This paper investigates the presence and characteristics of arbitrage opportunities in the foreign exchange market using a unique data set for three major capital and foreign exchange markets that covers a period of more than seven months at tick frequency, obtained from Reuters on special order. We provide evidence on the frequency, size and duration of round-trip and one-way arbitrage opportu...

This study re-examines the validity of Purchasing Power Parity (PPP) by focusing on the real effective exchange rates (REERs) for the post-Bretton Woods period, using newly developed unit root tests that account for both nonlinearity and smooth temporary multiple breaks in the data. The tests are applied to the REERs of 23 developed countries and are able to reject the null hypothesis of a unit...

Financing through crowdfunding is growing rapidly, especially for start-ups. Investment financing via crowdfunding is integrated with the real side of the firm as future consumers may potentially provide all or part of the required resources. We derive the optimal pre-sale crowdfunding contract of a financially constrained monopolist and analyze its implications for production, investment and w...

We study the dynamic general equilibrium of an economy where risk averse shareholders delegate the management of the firm to risk averse managers. The optimal contract has two main components: an incentive component corresponding to a non-tradable equity position and a variable ’salary’ component indexed to the aggregate wage bill and to aggregate dividends. Tying a manager’s compensation to th...

Wage-Hours Contracts, Overtime Working and Premium Pay This paper offers a contract-based theory to explain the determination of standard hours, overtime hours and overtime premium pay. We expand on the wage contract literature that emphasises the role of firm-specific human capital and that explores problems of contract efficiency in the face of information asymmetries between the firm and the...

I present a model of venture capital contracting in which contracts that involve a mixture of both debt and equity are efficient and dominate pure-equity and pure-debt financing. The optimal contract balances the venture capitalist’s incentive to intervene in the project and the entrepreneur’s desire for control. JEL classification: G24, G32

An optimal contract may involve randomization when the agents differ in their attitudes towards risk, so that randomization enables the principal to relax the incentive constraints. The paper provides a necessary and sufficient condition for local random deviations to be welfare improving in a neighborhood of a nonrandom optimum. JEL classification numbers: H21, H23, H26.