International R&D Spillovers and Asset Prices

60 Pages Posted: 4 Dec 2015 Last revised: 21 Feb 2019

See all articles by Federico Gavazzoni

Federico Gavazzoni

INSEAD

Ana Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: 2015-12-02

Abstract

We study the international propagation of long-run risk in the context of a general equilibrium model with endogenous growth. Innovation and international diffusion of technologies are the channels at the core of our mechanism. A calibrated version of the model matches several asset pricing and macroeconomic quantity moments, alleviating some of the puzzles highlighted in the international macro-finance literature. Our model predicts that country-pairs that share more R&D have less volatile exchange rates and more correlated stock market returns. Using data from a sample of 19 developed countries, we provide suggestive empirical evidence in favor of our model’s predictions.

Keywords: international asset pricing, recursive preferences, long-run risk, innovation, international diffusion

JEL Classification: F3, F4, O3

Suggested Citation

Gavazzoni, Federico and Santacreu, Ana Maria Maria, International R&D Spillovers and Asset Prices (2015-12-02). FRB St. Louis Working Paper No. 2015-41. Available at SSRN: https://ssrn.com/abstract=2698556 or http://dx.doi.org/10.20955/wp.2015.041

Federico Gavazzoni (Contact Author)

INSEAD ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

HOME PAGE: http://federicogavazzoni.com

Ana Maria Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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