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...

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...

An important feature of bond markets is the relationship between initial public offering prices and the probability of the issuer defaulting. First, this probability affects bond prices. Second, IPO prices determine the default probability. Though the market equilibrium has been shown to predict well for other assets, it is a priori unclear whether markets will yield competitive prices when suc...

Tax rates have fluctuated considerably since federal income taxes were introduced in the U.S. in 1913. This paper analyzes the effects of stochastic taxation on asset prices in a dynamic general equilibrium model. Stochastic taxation affects the after-tax returns of both risky and safe assets. Whenever taxes change, bond and equity prices adjust to clear the asset markets. These price adjustmen...

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 ...

I present evidence of inefficient information processing in equity markets by documenting that negative information withheld by securities analysts is incorporated in stock prices with a significant delay. I estimate the extent of the withheld negative information based on the proportion of analysts who stop revising their annual earnings forecasts. This measure predicts negative earnings surpr...

This study investigates whether personal taxes are related to asset valuations. The effective tax rate of investment income fluctuated considerably since federal income taxes were introduced. The main result of the paper demonstrates that there is an economically and statistically significant relationship between asset valuations and personal tax rates. Stock valuations tend to be higher when t...

This article combines an orientation to credit risk modeling with an introduction to affine Markov processes, which are particularly useful for financial modeling. We emphasize corporate credit risk and the pricing of credit derivatives. Applications of affine processes that are mentioned include survival analysis, dynamic term-structure models, and option pricing with stochastic volatility and...

For a market with an atomless continuum of assets, we formulate the intuitive idea of a ‘‘well-diversified’’ portfolio, and present a notion of ‘‘exact arbitrage’’, strictly weaker than the more conventional notion of ‘‘asymptotic arbitrage’’, and necessary and sufficient for the validity of an APT pricing formula. Our formula involves ‘‘essential’’ risk, one based on a specific index portfolio...

Adopting an asset-market view of international risk sharing, we identify various sources of macroeconomic risk faced by international investors using a structural Vector Autoregression model. We find that most of the risk of exogenous financial market shocks are shared by international investors through the existing asset markets. However, other macroeconomic risks such as those associated with...