Market structure and pricing
-
-
Order Submission: The Choice between Limit and Market Orders
Most financial markets allow investors to submit both limit and market orders, but it is not always clear what affects the choice of order type. -
State Dependence in Fundamentals and Preferences Explains Risk-Aversion Puzzle
The authors examine the ability of economic models with regime shifts to rationalize and explain the risk-aversion and pricing-kernel puzzles put forward in Jackwerth (2000). -
Determinants of Borrowing Limits on Credit Cards
The difference between actual borrowings and borrowing limits alone generates information asymmetry in the credit card market. -
The Stochastic Discount Factor: Extending the Volatility Bound and a New Approach to Portfolio Selection with Higher-Order Moments
The authors extend the well-known Hansen and Jagannathan (HJ) volatility bound. HJ characterize the lower bound on the volatility of any admissible stochastic discount factor (SDF) that prices correctly a set of primitive asset returns. -
The Monetary Origins of Asymmetric Information in International Equity Markets
Existing studies using low-frequency data show that macroeconomic shocks contribute little to international stock market covariation. -
Modelling the Evolution of Credit Spreads in the United States
The authors use Jarrow and Turnbull's (1995) reduced-form methodology to model the evolution of the term structure of interest rates in the United States for different credit classes and different industries. -
November 23, 2004
Real Return Bonds: Monetary Policy Credibility and Short-Term Inflation Forecasting
The break-even inflation rate (BEIR) is calculated by comparing the yields on conventional and Real Return Bonds. Defined as the average rate of inflation that equates the expected returns on these two bonds, the BEIR has the potential to contain useful information about long-run inflation expectations. Yet the BEIR has been higher, on average, and more variable than survey measures of inflation expectations, which may be explained by the effects of premiums and distortions embedded in the BEIR. Because of the difficulty in accounting for these distortions, the BEIR should not be given a large weight as a measure of long-run inflation expectations at this time. However, as the Real Return Bond market continues to develop, the BEIR should become a more useful indicator of inflation expectations. At present, it demonstrates no clear advantage over survey measures and even past inflation rates in forecasting near-term inflation. -
Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate
According to the Fisher hypothesis, the gap between Canadian nominal and Real Return Bond yields (or break-even inflation rate) should be a good measure of inflation expectations. -
International Equity Flows and Returns: A Quantitative Equilibrium Approach
The authors model trading by foreign and domestic investors in developed-country equity markets.