The CAPM, National Stock Market Betas, and Macroeconomic Covariates: A Global Analysis, (with Adnan Velic), August 2018.
Abstract: Using global data on aggregate stock market prices, this paper finds that the standard capital asset pricing model (CAPM) fares much better than suggested in the literature. At shorter time horizons, our results also show that the positive risk-reward relation can collapse during times of high volatility. Compared to advanced and emerging markets, we retrieve evidence of lower systematic risks across frontier stock market portfolios. We find that countries characterized by higher levels of financial and trade openness, exchange rate volatility, and larger economic size are exposed to higher systematic covariances with the world stock market. Conversely, we obtain evidence of an inverse link between international reserves and systematic risks in national equity.
Interest Rate Volatility and Macroeconomic Dynamics: Heterogeneity Matters, (with Adnan Velic), October 2017 [appendix].
Abstract: We examine the relation between real interest rate volatility and aggregate fluctuations for a diverse sample of countries. Compiling a new dataset that includes calm and volatile emerging and advanced countries, the substantial variation in our data yields novel results: (i) stochastic volatility outperforms Markov-switching in representing interest rates, (ii) some advanced economies can be more volatile than emerging markets, and (iii) creditors take on more debt following volatility shocks. We build and show how an equilibrium business cycle model with uncertainty shocks can generate these facts. Sample heterogeneity produces significant parameter differences, playing an important role in distinguishing the effects of volatility shocks.
Real Exchange Rate Persistence and Country Characteristics, (with Adnan Velic), October 2017 [appendix].
Abstract: This paper examines the persistence of real exchange rates across 151 countries. We employ univariate time series techniques on a country-by-country basis allowing for deterministic structural breaks and nonlinearities in the adjustment process. Our findings suggest that bilateral exchange rates display higher rates of persistence than multilateral exchange rates, with the latter exhibiting half-lives of less than 1 year. Assessing country results by stage of economic development, we find that industrial countries display higher levels of exchange rate inertia than developing countries. We retrieve evidence indicating that higher inflation, nominal exchange rate volatility, trade openness and proximity to reference country are associated with faster rates of real exchange rate convergence. Conversely, international financial integration is found to only play a role at the country group level, with differential effects across cohorts.
- International Financial Macroeconomics
- Computational Macroeconomics
- DSGE Models
- New Macroeconometrics
- Time Series Econometrics
- Bayesian Methods
- High Performance Computing
- Parallel Programming