Date of this Version
Journal of Monetary Economics
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.
© 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/
financial integration, international risk sharing, global asset pricing
Lewis, K. K., & Liu, E. (2015). Evaluating International Consumption Risk Sharing Gains: An Asset Return View,. Journal of Monetary Economics, 71 84-98. http://dx.doi.org/10.1016/j.jmoneco.2014.11.010
Date Posted: 27 November 2017
This document has been peer reviewed.