Finance Papers

Document Type

Journal Article

Date of this Version

4-2015

Publication Source

Journal of Monetary Economics

Volume

71

Start Page

84

Last Page

98

DOI

10.1016/j.jmoneco.2014.11.010

Abstract

International consumption risk sharing studies often generate counterfactual implications for asset return behavior with potentially misleading results. We address this contradiction using data moments of consumption and asset returns to fit a canonical international consumption risk sharing framework. Introducing persistent consumption risk, we find that its correlation across countries is more important for risk sharing than that of transitory risk. To identify these risk components, we jointly exploit the comovement of equity returns and consumption. This identification implies high correlations in persistent consumption risk, suggesting a strong degree of existing risk sharing despite low consumption correlations in the data.

Copyright/Permission Statement

© 2015. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

financial integration, international risk sharing, global asset pricing

Embargo Date

11-18-2016

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Date Posted: 27 November 2017

This document has been peer reviewed.