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Peso Problems: Their Theoretical and Empirical Implications

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  • Martin D.D. Evans

Abstract

This paper examines how the theoretical and empirical implications of asset pricing models are affected by the presence of a "peso problem"; a situation where the potential for discrete shifts in the distribution of future shocks to the economy affects the rational expectations held by market participants. The papaer examines the ways in which "peso problems" can induce behavior in asset prices that appartently contradicts conventional rational expectations assumptions. This analysis covers the relationship between realized and expected returns, asset prices and fundamentals, and the determination of risk premia.

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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 95-05.

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Date of creation: May 1995
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Handle: RePEc:ste:nystbu:95-05

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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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Cited by:
  1. Söderlind, Paul & Svensson, Lars E.O., 1996. "New Techniques to Extract Market expectations from Financial Instruments," Working Paper Series in Economics and Finance 142, Stockholm School of Economics.
  2. Charles Engel, 1995. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc.
  3. Geert Bekaert & Robert J. Hodrick & David A. Marshall, 1997. ""Peso Problem" Explanations for Term Structure Anomalies," NBER Working Papers 6147, National Bureau of Economic Research, Inc.
  4. Chollete, Lorán, 2009. "The Propagation of Financial Extremes," Discussion Papers 2008/25, Department of Business and Management Science, Norwegian School of Economics.
  5. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-82, April.
  6. Ligeralde, Antonio V., 1997. "Covariance matrix estimators and tests of market efficiency," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 323-343, April.
  7. Reitz, Stefan & Rülke, Jan-Christoph & Stadtmann, Georg, 2009. "Are oil price forecasters finally right? Regressive expectations toward more fundamental values of the oil price," Discussion Paper Series 1: Economic Studies 2009,32, Deutsche Bundesbank, Research Centre.
  8. Martin D. D. Evans, 2002. "FX Trading and Exchange Rate Dynamics," Journal of Finance, American Finance Association, vol. 57(6), pages 2405-2447, December.
  9. Nicolas Million, 2007. "Effet peso : présentation théorique et application à la politique monétaire," Documents de travail du Centre d'Economie de la Sorbonne v07012, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  10. Chollete, Loran & Jaffee, Dwight, 2009. "Economic Implications of Extreme and Rare Events," UiS Working Papers in Economics and Finance 2009/32, University of Stavanger.
  11. Martin Evans, 1998. "Looking Behind the U. K.Term Structure: Were there Peso Problems in Inflation?," Finance 9809001, EconWPA.

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