Capital Market Integration and Consumption Risk Sharing Over the Long Run

57 Pages Posted: 16 Jan 2014 Last revised: 20 Jan 2016

See all articles by Jesper Rangvid

Jesper Rangvid

Copenhagen Business School

Pedro Santa-Clara

New University of Lisbon - Nova School of Business and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Maik Schmeling

Goethe University Frankfurt - Department of Finance; Centre for Economic Policy Research (CEPR)

Date Written: January 12, 2016

Abstract

We empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012. We show that there has been considerable variation over time in the degrees of capital market integration and consumption risk sharing and that higher capital market integration forecasts more consumption risk sharing in the future. This finding is robust to controlling for trade openness and exchange rate volatility as alternative drivers of risk sharing. Finally, we calculate the welfare costs of imperfect consumption risk sharing and find that these costs vary over time, line up with variation in risk sharing, and are quite substantial during periods of low risk sharing.

Keywords: Market integration, Consumption risk sharing, International financial markets

JEL Classification: F36, F21, E44, G12

Suggested Citation

Rangvid, Jesper and Santa-Clara, Pedro and Schmeling, Maik, Capital Market Integration and Consumption Risk Sharing Over the Long Run (January 12, 2016). Available at SSRN: https://ssrn.com/abstract=2379362 or http://dx.doi.org/10.2139/ssrn.2379362

Jesper Rangvid

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
DENMARK

Pedro Santa-Clara

New University of Lisbon - Nova School of Business and Economics ( email )

Lisbon
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~psc/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Maik Schmeling (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://sites.google.com/site/maikschmeling/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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