International R&D Spillovers and Asset Prices
60 Pages Posted: 4 Dec 2015 Last revised: 21 Feb 2019
Date Written: 2015-12-02
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 modelâ€™s predictions.
Keywords: international asset pricing, recursive preferences, long-run risk, innovation, international diffusion
JEL Classification: F3, F4, O3
Suggested Citation: Suggested Citation