The Federal Reserve’s unconventional monetary policy announcements in 2008–2009 substantially reduced international long-term bond yields and the spot value of the dollar. These changes closely followed announcements and were very unlikely to have occurred by chance. A simple portfolio choice model can produce quantitatively plausible changes in U.S. and foreign excess bond yields. The jump depreciations of the USD are fairly consistent with estimates of the impacts of previous equivalent monetary policy shocks. The policy announcements do not appear to have reduced yields by reducing expectations of real growth. Unconventional policy can reduce international long-term yields and the value of the dollar even at the zero bound.

This paper merges the literature on technical trading rules with the literature on Markov switching to develop economically useful trading rules. The Markov models’ out-of-sample, excess returns modestly exceed those of standard technical rules and are profitable over the most recent subsample. A portfolio of Markov and standard technical rules outperforms either set individually, on a risk-adjusted basis. The Markov rules’ high excess returns contrast with mixed performance on statistical tests of forecast accuracy. There is no clear source for the trends, but permitting the mean to depend on higher moments of the exchange rate distribution modestly increases returns.

The adaptive markets hypothesis posits that trading strategies evolve as traders adapt their behavior to changing circumstances. This paper studies the evolution of trading strategies for a hypothetical trader who chooses portfolios from foreign exchange (forex) technical rules in major and emerging markets, the carry trade, and US equities. The results show that a backtesting procedure to choose optimal portfolios improves upon the performance of nonadaptive rules. We also find that forex trading alone dramatically outperforms the S&P 500, with much larger Sharpe ratios over the whole sample, but there is little gain to coordinating forex and equity strategies, which explains why practitioners consider these tools separately. Forex trading returns dip significantly in the 1990s but recover by the end of the decade and have been markedly superior to an equity position since 1998. Overall, trading rule returns still exist in forex markets—with substantial stability in the types of rules—though they have migrated to emerging markets to a considerable degree.

This paper evaluates the literature on international unconventional monetary policies (UMPs). Introducing market segmentation, limits-to-arbitrage, and time-consistent policy in standard models permits a theoretical role for UMP. Empirical studies provide compelling evidence that UMPs influenced international asset prices and tail risk in the desired manner. Calibrated modeling and vector autoregressive (VAR) exercises imply that these policies also improved macroeconomic outcomes. We assess the recent debate on the empirical evidence and discuss central bank assessments of UMP. Despite qualified successes, we recommend that UMP be reserved for crises and/or when the zero bound constrains conventional monetary policy.

We analyze the intertemporal stability of excess returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously studied rules. The excess returns of the 1970s and 1980s were genuine and not just the result of data mining. But these profit opportunities had disappeared by the early 1990s for filter and moving average rules. Returns to less-studied rules also have declined but have probably not completely disappeared. High volatility prevents precise estimation of mean returns. These regularities are consistent with the Adaptive Markets Hypothesis (Lo (2004)), but not with the Efficient Markets Hypothesis.

This paper argues that inferring long-horizon asset-return predictability from the properties of vector autoregressive (VAR) models on relatively short spans of data is potentially unreliable.We illustrate the problems that can arise by re-examining the findings of Bekaert and Hodrick (1992), who detected evidence of in-sample predictability in international equity and foreign exchange markets using VAR methodology for a variety of countries over the period 1981-1989.The VAR predictions are significantly biased in most out-of-sample forecasts and are conclusively outperformed by a simple benchmark model at horizons of up to six months.This remains true even after corrections for small sample bias and the introduction of Bayesian parameter restrictions.A Monte Carlo analysis indicates that the data are unlikely to have been generated by a stable VAR.This conclusion is supported by an examination of structural break statistics.Implied long-horizon statistics calculated from the VAR parameter estimates are shown to be very unreliable.

This paper highlights the previously neglected role of the futures markets in US Treasury price discovery. The estimates of 5- and 10-year GovPX spot market information shares typically fail to reach 50% from 1999 on. The GovPX information shares for the 2-year contract are higher than those of the 5- and 10-year maturities but also decline after 1998. Relative bid-ask spreads, number of trades, and realized volatility are statistically significant and explain up to 21% of daily information shares. In roughly 1/4 of cases when public information is released, the futures market gains information share, but macroeconomic announcements rarely explain information shares independently of liquidity.

This paper evaluates the most appropriate ways to model diffusion and jump features of high-frequency exchange rates in the presence of intraday periodicity in volatility. We show that periodic volatility distorts the size and power of conventional tests of Brownian motion, jumps and (in)finite activity. We propose a correction for periodicity that restores the properties of the test statistics. Empirically, the most plausible model for 1-min exchange rate data features Brownian motion and both finite activity and infinite activity jumps. Test rejection rates vary over time, however, indicating time variation in the data generating process. We discuss the implications of results for market microstructure and currency option pricing.