The Risky Capital of Emerging Markets

60 Pages Posted: 22 Dec 2014 Last revised: 2 Apr 2022

See all articles by Joel David

Joel David

Federal Reserve Bank of Chicago

Espen Henriksen

Department of Financial Economics, BI Norwegian Business School

Ina Simonovska

University of California - Davis; National Bureau of Economic Research (NBER)

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Date Written: December 2014

Abstract

We use macroeconomic data to build a panel of international capital returns over a long horizon across both developed and developing countries. We document two facts: poor and emerging markets exhibit (1) high average returns to capital and (2) high betas on US returns. We quantitatively explore whether consumption-based risk faced by a US investor can reconcile these patterns. Long-run risks lead to return disparities at least 55% as large as those in the data. Fact (2), although not a sufficient statistic, is informative about the extent of long-run risk in foreign capital, and so about fact (1).

Suggested Citation

David, Joel and Henriksen, Espen and Simonovska, Ina, The Risky Capital of Emerging Markets (December 2014). NBER Working Paper No. w20769, Available at SSRN: https://ssrn.com/abstract=2541545

Joel David (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Espen Henriksen

Department of Financial Economics, BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Ina Simonovska

University of California - Davis ( email )

1 Shields Ave
Davis, CA 95616
United States

HOME PAGE: http://inasimonovska.weebly.com/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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