Financial Markets and International Risk Sharing in Emerging Market Economies
25 Pages Posted: 27 Jul 2012
Date Written: July 5, 2012
Abstract
In light of rapidly increasing foreign equity liability positions of emerging market economies, we test for a necessary condition of international risk sharing, namely for systematic patterns between idiosyncratic output fluctuations and financial market developments. Panel analysis of 22 emerging market economies shows strong evidence for pro-cyclicality of capital gains on domestic stock markets both over short and medium term horizons. This implies that domestic output fluctuations can be hedged through cross-border ownership of financial markets.
Keywords: International risk sharing, capital gains, cross-border investment, financial globalisation, emerging market economies
JEL Classification: F21, F30, G15
Suggested Citation: Suggested Citation
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