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on International Finance |
| By: | Adrian, Tobias (Federal Reserve Bank of New York); Friedman, Evan (Columbia University); Muir, Tyler (Yale School of Management) |
| Abstract: | Standard factor pricing models do not capture well the common time-series or cross-sectional variation in average returns of financial stocks. We propose a five-factor asset pricing model that complements the standard Fama and French (1993) three-factor model with a financial sector ROE factor (FROE) and the spread between the financial sector and the market return (SPREAD). This five-factor model helps to alleviate the pricing anomalies for financial sector stocks and also performs well for nonfinancial sector stocks compared with the Fama and French (2014) five-factor model or the Hou, Xue, and Zhang (2014) four-factor models. We find that the aggregate expected return to financial sector equities correlates negatively with aggregate financial sector ROE, which is puzzling, as ROE is commonly used as a measure of the cost of capital in the financial sector. |
| Keywords: | cost of capital; financial intermediation; asset pricing; capital structure |
| JEL: | G12 G21 G24 G32 |
| Date: | 2015–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:755&r=ifn |
| By: | Lewis, John (Bank of England) |
| Abstract: | Using a large data set of import volumes and values for goods imports from around 50 trading partners, and 3,000 goods type, this paper finds that the micro level, passthrough is non-linear in the exchange rate. The passthrough of larger bilateral exchange rate movements (ie more than 5%) is around four times larger than that of smaller changes. However, regressions on aggregate data indicate that passthrough at the macro level is close to full. The resolution to this apparent puzzle lies in the fact that larger bilateral movements account for the vast majority of variation in the exchange rate index, and hence the non-linearity at the micro level largely disappears at the macro level. |
| Keywords: | Exchange rate passthrough; Big Data; non-linearity |
| JEL: | E31 F14 F41 |
| Date: | 2016–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0579&r=ifn |
| By: | Peiris, M.Udara (International College of Economics and Finance, National Research University-Higher School of Economics, Moscow, Russia and Department of Economics, University of Warwick); Polemarchakis, Herakles (Department of Economics, University of Warwick) |
| Abstract: | Explicit targets for the composition of assets traded by governments are necessary for fiscal-monetary policy to determine the stochastic paths of inflation or exchange rates; this is the case even if fiscal policy is non-Ricardian.Targets obtain with the traditional conduct of monetary policy and Credit Easing, but not with inconventional policy and Quantitative Easing. The composition of the portfolios traded by monetary-fiscal authorities determines premia in asset and currency markets |
| JEL: | E50 F41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1094&r=ifn |