Essays on Empirical Finance

Advisor: Ruy Monteiro Ribeiro

The thesis is composed of two papers on empirical finance. The first paper focuses on FX markets. It constructs measures of term structure slope changes for the US and other G10 countries using short-term interest futures at different horizons. These changes in term structure slopes have immediate impact on currency returns but also a strong delayed effect over the following weeks, implying that currencies are predictable. The paper presents strong evidence of out-of-sample short-term predictability for both individual currencies and currency portfolios. These findings represent empirical evidence of delayed currency market reaction to information in interest rates markets. The second paper focuses on equity returns in the US.  It proposes a novel forecasting measure for aggregate market returns that solely uses cross-sectional information on CAPM betas simple dispersion measures. The latent factor structure of portfolio or individual stock betas has strong predictive power both in and out-of-sample, and are robust to different estimation windows. Unlike most measures in the literature, it is not a price or valuation-based ratio. This novel measures also vary with the business cycle and correlate with other commonly used forecasting variable such as dividend-to-price or consumption-to-wealth ratios, but provide explanatory power above and beyond these standard predictors.