A multivariate generalized ARCH approach to modeling risk premia in forward foreign exchange rate markets

Assuming that daily spot exchange rates follow a martingale process, we derive the implied time series process for the vector of 30-day forward rate forecast errors from using weekly data. The conditional second moment matrix of this vector is modelled as a multivariate generalized ARCH process. The estimated model is used to test the hypothesis that the risk premium is a linear function of the conditional variances and covariances as suggested by the standard asset pricing theory literature. Little supportt is found for this theory; instead lagged changes in the forward rate appear to be correlated with the 'risk premium.'. © 1990.

Essays in Macro Finance

I study the link between capital markets and sources of macroeconomic risk. In chapter 1 I show that expected inflation risk is priced in the cross section of stock returns even after controlling for cash flow growth and volatility risks. Motivated by this evidence I study a long run risk model with a built-in inflation non-neutrality channel that allows me to decompose the real stochastic discount factor into news about current and expected cash flow growth, news about expected inflation and news about volatility. The model can successfully price a broad menu of assets and provides a setting for analyzing cross sectional variation in expected inflation risk premium. For industries like retail and durable goods inflation risk can account for nearly a third of the overall risk premium while the energy industry and a broad commodity index act like inflation hedges. Nominal bonds are exposed to expected inflation risk and have inflation premiums that increase with bond maturity. The price of expected inflation risk was very high during the 70's and 80's, but has come down a lot since being very close to zero over the past decade. On average, the expected inflation price of risk is negative, consistent with the view that periods of high inflation represent a "bad" state of the world and are associated with low economic growth and poor stock market performance. In chapter 2 I look at the way capital markets react to predetermined macroeconomic announcements. I document significantly higher excess returns on the US stock market on macro release dates as compared to days when no macroeconomic news hit the market. Almost the entire equity premium since 1997 is being realized on days when macroeconomic news are released. At high frequency, there is a pattern of returns increasing in the hours prior to the pre-determined announcement time, peaking around the time of the announcement and dropping thereafter.

Spatial distribution of bednet coverage under routine distribution through the public health sector in a rural district in Kenya.

Insecticide-treated nets (ITNs) are one of the most important and cost-effective tools for malaria control. Maximizing individual and community benefit from ITNs requires high population-based coverage. Several mechanisms are used to distribute ITNs, including health facility-based targeted distribution to high-risk groups; community-based mass distribution; social marketing with or without private sector subsidies; and integrating ITN delivery with other public health interventions. The objective of this analysis is to describe bednet coverage in a district in western Kenya where the primary mechanism for distribution is to pregnant women and infants who attend antenatal and immunization clinics. We use data from a population-based census to examine the extent of, and factors correlated with, ownership of bednets. We use both multivariable logistic regression and spatial techniques to explore the relationship between household bednet ownership and sociodemographic and geographic variables. We show that only 21% of households own any bednets, far lower than the national average, and that ownership is not significantly higher amongst pregnant women attending antenatal clinic. We also show that coverage is spatially heterogeneous with less than 2% of the population residing in zones with adequate coverage to experience indirect effects of ITN protection.