Cabrera, Juan, Wang, Tao and Yang, Jian
Journal of Futures Markets Vol. 29, Issue 2, p. 137-156

Using intraday data, this study investigates the contribution to the price discovery of Euro and Japanese Yen exchange rates in three foreign exchange markets based on electronic trading systems: the CME GLOBEX regular futures, E-mini futures, and the EBS interdealer spot market. Contrary to evidence in equity markets and more recent evidence in foreign exchange markets, the spot market is found to consistently lead the price discovery process for both currencies during the sample period. Furthermore, E-mini futures do not contribute more to the price discovery than the electronically traded regular futures.

Guo, Hui, Robert Savickas, Zijun Wang, and Jian Yang
Journal of Financial and Quantitative Analysis, Vol 44, Issue 1 , pp. 133-154

Recent authors argue that the value premium constructed from the cross-section of stocks is a proxy for investment opportunities. We show that this conjecture sheds light on the puzzling empirical risk-return tradeoff in the stock market across time. That is, in contrast with many early authors, we find that the stock market return is positively and significantly related to its conditional variance after controlling for its covariance with the value premium. The covariance, which is negatively correlated with stock variance, is positively and significantly priced as well.

Therefore, by ignoring the effect of time-varying investment opportunities on the stock market return, the early specification might suffer from an omitted variables problem, which generates a downward bias in the estimate of the risk-return relation. Also, consistent with recent investment-based equilibrium models, we document a positive and significant relation between the value premium and its conditional variance over the post-1963 period. Overall, our empirical evidence suggests that the value premium might be a proxy for investment opportunities.

Tao Wang, Jian Yang and Simpson, Marc W.
Financial Review Vol. 43, Issue 4, p. 509-541

Intraday currency futures prices react to both surprises in the federal funds target rate (the target factor) and surprises in the anticipated future direction of Federal Reserve monetary policy (the path factor) in similar magnitude, and the reaction is short-lived. Dollar-denominated currency futures prices drop significantly in response to positive surprises (i.e., unexpected increases) in the target and path factors, but have generally little response to negative surprises. A monetary policy tightening during expansionary periods leads to an appreciation of the domestic currency, while a monetary policy loosening during recessionary periods tends to have no significant impact.

Dennis W. Jansen, Qi Li, Zijun Wang, and Jian Yang
Journal of Econometrics Vol. 147, Issue 1, p. 141-150

This paper contributes to the literature in two important aspects. We first examine the role of fiscal policy on the U.S. stock and bond markets, and we document the conditioning information role of fiscal policy via interactions with monetary policy, a feature that has been forcefully emphasized in the recent theoretical literature but not yet thoroughly investigated empirically. The few existing empirical works only consider the role of fiscal policy as a direct information variable separate from monetary policy. Second, we employ a flexible varying coefficient specification in our econometric analysis, which has not been commonly used in this line of research. We find that a semiparametric varying coefficient model and its variants (Cai, Fan, Yao, 2000) appear to be particularly suitable for capturing the potentially complex interactions between fiscal and monetary policies.

Wang, Tao, Wu, Jingtao, and Yang, Jian
Journal of Futures Markets, Vol. 28 Issue 10, p. 993-1011

Using high-frequency returns, realized volatility and correlation of the NYMEX light, sweet crude oil, and Henry-Hub natural gas futures contracts are examined. The unconditional distributions of daily returns and daily realized variances are non-Gaussian, whereas the distributions of the standardized returns (normalized by the realized standard deviation) and the (logarithms of) realized standard deviations appear approximately Gaussian. The (logarithms of) standard deviations exhibit long-memory, but the realized correlation between the two futures does not, implying rather weak inter-market linkage in the long run. There is evidence of asymmetric volatility for natural gas but not for crude oil futures. Finally, realized crude oil futures volatility responds with an increase in the weeks immediately before the OPEC events recommending price increases.

Yang, Jian, Su, Xiaojing, and Kolari, James
Journal of Banking & Finance; Vol. 32 Issue 5, p. 729-740

Traditional autocorrelation and variance ratio tests are based on serial uncorrelatedness rather than martingale difference. As such, they do not capture potential nonlinearity-in-mean, which could lead to misleading inferences in favor of the martingale hypothesis. This paper employs various parametric and nonparametric nonlinear models as well as several model comparison criteria to examine the potential martingale behavior of Euro exchange rates in the context of out-of-sample forecasts. The overall evidence indicates that, while martingale behavior cannot be rejected for Euro exchange rates with major currencies such as the Japanese yen, British pound, and US dollar, there is nonlinear predictability in terms of economic criteria with respect to several smaller currencies.

Yang, Jian, and David A. Bessler
European Journal of Operation Research, Vol 184, Issue 1, Pages 291-310

This study investigates financial contagion among seven international stock markets around the October 19, 1987 crash. Building on a recent advance in vector autoregression analysis by [Swanson, N., Granger, C.W.J., 1997. Impulse response functions based on a causal approach to residual orthogonalization in vector autoregression. Journal of the American Statistical Association 92, 357–367], data-determined historical decompositions are conducted to provide a day-by-day picture of price fluctuation transmission, which is crucial to explore the financial contagion pattern characterized by rich dynamics. The results clearly show that the crash originated in the US market and that an upward movement in the Japanese market after the crash helped the recovery in the US market, which has not yet been empirically documented in the literature.