Mark Taylor

• Washington University in St. Louis

Analyzing 48 foreign exchange (FX) rates and 1.2 million FX-related news articles over a 35-year period, using digital textual analysis, we find that a currency reversal investment strategy that buys (sells) currencies with low (high) media sentiment offers strong positive and statistically significant returns and Sharpe ratios. The results are rob...

We evaluate the cross-sectional predictive ability of a forward-looking monetary policy reaction function, or Taylor rule, in both statistical and economic terms. We find that investors require a premium for holding currency portfolios with high implied interest rates while currency portfolios with low implied rates offer negative currency excess r...

We investigate the real effects of foreign exchange (FX) volatility on technological innovation. Using a 32-market, three-decade sample, we show that heightened FX volatility associates with significantly lower firm-level R&D expenditures, patents granted, and forward citations. The negative FX volatility-innovation relation can be attributed to pr...

We examine the cross-sectional predictive ability of the Refinitiv Environmental, Social and Governance (ESG) score for returns in the foreign exchange market, using ESG scores aggregated at the national level, and find that ESG is a strong negative predictor of currency returns. Intuitively, investors require a premium for financing low-ESG countr...

The decline in late 19th century agricultural prices, reducing the incomes of aristocratic landed estates and of non-aristocratic landed families, led to richly dowried American heiress brides being substituted for brides from landed families in aristocratic marriages. This reflected a wider 19th century phenomenon of aristocratic substitution of f...

Through an analysis of over 4,000 multinational firms with foreign exchange (FX) exposures in 44 countries over a 30-year period to 2017, we provide cross-country evidence that greater firm-level unexpected FX volatility leads to significantly lower capital expenditures. The effect is stronger for countries with higher economic openness and for fir...

In the aftermath of the global financial crisis, many emerging market countries resorted to capital controls to tackle the excessive surge of capital inflows. A number of recent research papers have suggested that the imposition of controls may have imposed negative externalities on other countries by deflecting flows. Our aim in the research repor...

We study the role of domestic and global factors in the payoffs of portfolios mimicking carry, dollar-carry, and momentum strategies. Using factors summarizing large data sets of macroeconomic and financial variables, we find that global equity-market factors are predictive for carry-trade returns, whereas U.S. inflation and consumption variables d...

We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over 45 years for 30 developed and emerging market currencies. Employing a stepwise test to counter data-snooping bias and examining over 21,000 technical rules, we find evidence of substantial predictability and excess profitability...

In a number of empirical studies, transition economies have been shown to be subject to the Harrod-Balassa-Samuelson effect. This implies that the currencies of these countries have experienced a prolonged appreciation in real terms as their convergence proceeded. In this paper we find that a long-run relationship exists between the real exchange r...

Foreign exchange rates, asset prices and capital movements are expected to be closely related to each other as international capital markets become more and more integrated. This paper provides new empirical evidence from an index of exchange-rate adjusted cross-country asset price ratios, which may be interpreted as a real effective financial exch...

This paper investigates the role of political risk in the currency market. We propose a measure of global political risk relative to U.S. that captures unexpected political conditions. Global political risk is priced in the cross-section of currency momentum and it contains information beyond other risk factors. Our results are robust after control...

Foreign exchange trading is performed in opaque and decentralized markets. The two-tier market structure consisting of a customer segment and an interdealer segment to which only market makers have access gives rise to the possibility of price discrimination. We develop a theoretical pricing model that accounts for market-power considerations and a...

The quality of an exchange rate forecasting model has typically been judged relative to a random-walk in terms of out-of-sample forecast errors. The difficulty of outperforming this benchmark is well documented, although Clarida and Taylor have demonstrated how the random walk can be beaten in this metric by exploiting information embedded within t...

Using a measure of global political risk, relative to the U.S., that captures unexpected political conditions, we show that political risk is priced in the cross section of currency momentum and contains information beyond other risk factors. Our results are robust after controlling for transaction costs, reversals and alternative limits to arbitra...

In the current and foreseeable harsh UK higher education environment, aspiring to best- practice financial management will be key to ensuring the prosperity – and indeed the survival – of any university. In this article I argue that good university financial management should provide stability to the institution, allow for investment as well as ren...

Although the ERM II rules allow the Danish krone to fluctuate against the euro within an official target zone of 4.5%, most of the time the exchange rate has remained in a narrow range around its unconditional mean. Estimating a Smooth Transition Autoregression Target Zone (STARTZ) model confirms that the exchange rate exhibits target zone dynamics...

A governance model is developed in which university governance is shared between the academic and governing bodies and is coordinated by the university executive. Viewing the university as a professional service organisation, and noting the importance of developing a flexible culture within a shifting, marketised external environment, it is argued...

We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over a maximum of forty years for thirty developed and emerging market currencies. Employing a stepwise test to safeguard against data-snooping bias and examining over 21,000 technical trading rules, we find evidence of substantial p...

This book reflects the new diversity of interest in international finance that summarizes and synthesizes developments in the many and varied areas that are now viewed as having international content. The book attempts to differentiate between what is known, what is believed, and what is still being debated about international finance. The book con...

Burton Clark's 1998 monograph, Creating Entrepreneurial Universities: Organizational Pathways of Transformation , has become seminal in the literature on entrepreneurialism in universities. In this paper I re-examine the validity of Clark's analysis through an interview study of one of his original entrepreneurial universities, namely Warwick Unive...

The coordination channel has recently been established as an additional means by which foreign exchange market intervention may be effective. It is conjectured that strong and persistent misalignments of the exchange rate are caused by a coordination failure among fundamentals-based traders. In such situations official intervention may act as a coo...

We investigate methods of capturing the salient characteristics of very large datasets in an investigation of UK and US macroeconomic policy, using factor‐augmented VAR (FAVAR) models. We also estimate structural factor‐only VAR (FOVAR) models and examine the impact of aggregate demand and aggregate supply. In a further empirical application, we fi...

Prior to the global financial crisis of 2008, the UK had the largest banking sector asset to GDP ratio among large countries, and had experienced rapid real property price increases as well as a persistent current account deficit in the preceding decade. These factors, together with its role as an international financial centre, made the UK economy...

No abstract available.

We provide an introduction and overview to the 10 applied economics studies making up this special-themed issue on The Applied Economics of Industry. The studies cover a wide range of topics, and employ a variety of applied techniques.

This paper applies nonlinear econometric models to empirically investigate the effectiveness of the Reserve Bank of Australia (RBA) exchange rate policy. First, results from a STARTZ model are provided revealing nonlinear mean reversion of the Australian dollar exchange rate in the sense that mean reversion increases with the degree of exchange rat...

We provide an introduction and overview to the eleven applied economics studies making up this special themed issue on The applied economics of trade. The studies cover a wide range of topics, and employ a variety of applied techniques across a range of countries.

We provide an introduction and overview to the seven applied financial studies making up this special theme on labour. The studies cover a wide range of topics, and employ a variety of applied techniques across a range of countries.

This paper empirically investigates the Evans and Lyons' [2002. Understanding order flow. International Journal of Finance and Economics 11: 3-23] model of the foreign exchange market from a dealer's perspective. We provide evidence of the suggested information aggregation process using a rich database on a German bank's end-user order flow from 20...

This special issue of Applied Financial Economics is dedicated to the memory and the achievements of Professor Sir Clive Granger, economics Nobel laureate and one of the great econometricians and applied economists of the twentieth and early twenty-first centuries. As editor of the Applied Economics journals I am proud that Sir Clive had such a lon...

We investigate the determinants of forecast heterogeneity in the JPY/USD market using panel data from Consensus Economics. We find that past exchange-rate volatility increases forecast dispersion, while foreign exchange intervention of the Japanese Ministry of Finance dampens expectation heterogeneity.

We provide an introduction and overview to the 12 applied financial studies making up this special issue on the Global Financial Crisis (GFC). The studies cover a wide range of international and regional experience and employ a variety of applied techniques.

The opportunity set (OS) is an ex post measure of the maximum Sharpe ratio for a given universe of assets. As the authors show, the average value of the OS is approximately equal to the square root of portfolio breadth, or the number of assets in a portfolio. The authors thus suggest an interpretation of the OS to be the effective breadth of a port...

We provide an overview of the important events of the recent global financial crisis and their implications for exchange rates and market dynamics. Our goal is to catalogue all that was truly of major importance in this episode. We also construct a quantitative measure of crises that allows for a comparison of the current crisis to earlier events....

This essay introduces the papers presented at a conference held in April 2009 on the global financial crisis. The issue begins with four articles that survey the key events and analyze important issues around the crisis from the context of four asset classes: the equity market, fixed income market, foreign exchange market, and emerging markets. The...

We provide an introduction and overview to the 15 applied studies making up this special theme on sport. The studies cover a wide range of international and regional experience and employ a variety of applied techniques.

We provide an introduction and overview to the nine applied studies making up this special theme on transport. The studies cover a wide range of national and regional experience and employ a variety of applied techniques.

We provide an introduction and overview to the 10 applied studies making up this themed issue on employment. The studies cover a wide range of national and regional experience and employ a variety of applied techniques.

We introduce and summarize the results of 10 empirical studies that make up this special theme on monetary policy, covering a wide range of countries and issues.

We introduce and summarize the results of 12 empirical studies that make up this special theme on economic growth, covering a wide range of countries and issues.

We provide an introduction and overview to the 13 applied studies making up this special theme on money and inflation. The studies cover a wide range of national and regional experience in the relationship between inflation and money and employ a variety of applied techniques.

We introduce and summarize the results of 10 empirical studies that make up this special issue on fiscal policy, covering a wide range of developed and developing countries.

We introduce and summarize the results of 12 empirical studies that make up this special issue on health economics, covering a wide range of countries and issues.

We introduce and summarize the results of 18 empirical studies that make up this special issue on long-run purchasing power parity (PPP) and real exchange rates. The motivation for the special issue was to bring together a set of studies as diverse as possible in terms of countries, real exchange rates and methodology, as a means of testing the rob...

We introduce and summarize the results of nine empirical studies that make up this special issue on agricultural economics. The research includes studies applied to the US, Bangladesh, Northern Ireland, Germany, Poland, Taiwan, Tunisia and Italy.

Though unambiguously outperforming all other financial markets in terms of liquidity, foreign exchange trading is still performed in opaque and decentralized markets. In particular, the two-tier market structure consisting of a customer segment and an interdealer segment to which only market makers have access gives rise to the possibility of price...

There are no established benchmarks for evaluating currency investment manager performance. Some analysts have suggested that known investing styles like momentum, purchasing power parity, and carry serve as benchmarks. Challenges for this approach include: there is no market portfolio; there are many alternative generic factor constructions; diffe...

We analyze the network of bilateral liquidity swaps (BSAs) among the ASEAN+3 countries. We find that the network has taken the correlation of capital flows in the region into account, in the sense that countries with lower correlation of reserve growth have engaged in larger BSAs. All else equal, a decimal point increase in the correlation of inter...

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The coordination channel has recently been established as an additional means by which foreign exchange market intervention may be effective. In Sarno and Taylor (2001) it is conjectured that strong and persistent misalignments of the exchange rate are caused by a coordination failure among fundamentals-based traders. In such situations official in...

The coordination channel of foreign exchange intervention has been proposed as a means by which foreign exchange market intervention may be effective when misalignments of the exchange rate are generated by non-fundamental influences and the return to equilibrium is hampered by a coordination failure among fundamentals-based traders. Under these ci...

In this paper we provide evidence for Evans and Lyons' (2005b) model of an information aggregation process in FX markets using a German bank's end-user order flow from 2002 to 2003. Though customer order flow is unambiguously the vehicle incorporating non-public information into exchange rates over time, our empirical analysis does not support the...

Using self-exciting threshold autoregressive models, we explore the validity of the law of one price (LOOP) for sixteen sectors in nine European countries. We find strong evidence of nonlinear mean reversion in deviations from the LOOP and highlight the importance of modelling the real exchange rate in a nonlinear fashion in an attempt to measure s...

Using data since 1820 for the US, the UK and France, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility across nominal regimes. A statistically significant HBS effect for sterling-dolla...

Research suggests that customer order flow should help predict exchange rates. We make two contributions. First, we provide a review of the recent literature on order flow and exchange rate movements. Second, we critically evaluate the practical value of customer order flow data that are commercially available to the wider market, as well as the fo...

Taylor (1994, 1995) [Taylor, M.P., 1994. Exchange rate behaviour under alternative exchange rate regimes. In: Kenen, P. (Ed.), Understanding Interdependence: The Macroeconomics of the Open Economy. Princeton University Press, Princeton; Taylor, M.P., 1995. The economics of exchange rates. Journal of Economic Literature 33, 13–47] has proposed the c...

Technical analysis involves the prediction of asset price movements from inductive analysis of past movements. We establish a number of stylized facts, including that technical analysis is widespread in the foreign exchange market and that it may be profitable. We then analyze four arguments that have been put forward to explain this: that the mark...

The extended recession and stagnant housing market in the 1990s following the boom of the late 1980s resulted in more than half a million housing repossessions. This study explores the impact of unsustainable housing commitments on psychological well-being. We test the hypotheses that housing payment problems and housing arrears have adverse impact...

This chapter addresses the nonlinear models of current account adjustment for the G7 countries. For most of the G7 countries, significant evidence of threshold effects in current account adjustment is observed. Statistically significant increases in exchange rate volatility during current account deficit adjustment regimes for the United States, Ja...

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Using Self-Exciting Threshold Autoregressive Models (SETAR), this paper explores the validity of the Law of One Price (LOOP) for nineteen sectors in ten European countries. We find strong evidence of nonlinear mean reversion in deviations from the LOOP. We highlight the importance of modelling the real exchange rate in a nonlinear fashion in an att...

In a case study of six East Asian economies, we use dynamic factor analysis to estimate a regional component of the exchange market pressure index (EMPI) as a measure of regional financial stress. The extent to which this indicator is explained by regional economic and financial factors is interpreted as regional vulnerability to crisis. We find th...

We examine the impact of internal migration in Britain on the growth in men's hourly wages using nationally representative panel data. To do this we compare wage outcomes for migrants against different control groups, and explicitly allow for the potential endogeneity of the migration decision. Our results demonstrate the existence of a wage growth...

We examine potential nonlinear behaviour in the conduct of monetary policy by the Bank of England. We find significant nonlinearity in this policy setting, and in particular that the standard Taylor rule really only begins to bite once expected inflation is significantly above its target. This suggests, for example, that while the stated objective...

We examine the behavior of the real exchange rates of nine transition economies during the 1990s. We propose an empirical model rationalized on the basis of standard economic models in the tradition of Mundell-Fleming-Dornbusch and Harrod-Balassa-Samuelson, allowing explicitly for real interest rate differentials and (implicitly) for productivity d...

[eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed...

If strong and persistent misalignments of the exchange rate are caused by non-fundamental influences, such that a return to equilibrium is hampered by a coordination failure among fundamentals-based traders, then central bank intervention may act as a coordinating signal, encouraging stabilizing speculators to re-enter the market at the same time....

We provide a detailed, up-to-date description of the microstructure of the foreign exchange market and of the behaviour of participant groups. In the light of this, we highlight shortcomings in existing theoretical models of market interaction and present an outline alternative model that marries theoretical prediction and current market practice....

This study provides a critical review of the research literature on long-run Purchasing Power Parity and the stability of real exchange rates.

We examine the term structure of interest rates for the United States, Germany, and Japan over the period 1982–2000, using a nonlinear multivariate vector equilibrium correction-modeling framework that allows for asymmetric adjustment and regime shifts. The model has a very general underlying theoretical rationale that allows for time-varying term...

We implement novel tests of general relative purchasing power parity (PPP), defined as a long-run unit elasticity of the nominal exchange rate with respect to relative national prices, allowing for potentially permanent real exchange rate shocks. The finite-sample properties of the estimators used are analyzed through Monte Carlo analysis, allowing...

I examine the effectiveness of exchange rate intervention within the context of a Markov-switching model for the real dollar-yen exchange rate over the period April 1991-December 2003. The probability of switching between stable and unstable regimes depends nonlinearly upon the amount of intervention, the degree of misalignment and the duration of...

We examine the evidence regarding systematic patterns in the euro-dollar foreign exchange market on days when the Governing Council (GC) of the European Central Bank announces its interest rate decisions versus other days. We examine 5-minute data in a non-linear framework allowing for switching between a high-volatility, informed-trading state and...

We examine the dynamic relationship between Euromarket interest rates at different maturities for the US and the UK over the period 1982-2000. We use a general, multi- variate vector equilibrium correction modelling framework incorporating both asymmetric adjustments and regime shifts, which may be justified by a very general theoretical model of t...

We demonstrate that a popular method of estimating underlying structural macroeconomic shocks and their impulse-response functions through recursive long-run structural restrictions on a vector autoregressive representation is not uniquely identified. We show, however, that it may be possible to infer additional qualitative restrictions to achieve...

We describe the dynamics of second job holding in Britain during the 1990s using panel data from the British Household Panel Survey. Our results show that second job holding is surprisingly persistent over time – about 10% of workers have a second job at any point in time while two thirds of second job holders remain in second jobs for at least two...