Fernando Restoy () (Banco de España) Rosa Rodríguez () (Universidad Carlos III)
Abstract
Previous studies show that existing correlations between national returns are higher than correlations between the national growth rates of fundamental variables. This paper examines the ability of intertemporal asset pricing models to explain crosscountry correlations of national returns. We find that when capital markets are assumed to be fully integrated, a simple intertemporal general equilibrium model is able to explain the observed co variability of domestic asset returns but generates too little variability in those returns. Results improve considerably if a less restrictive version is employed. In that setting, both domestic variability and cross country co variability of returns are consistent with capital market integration.
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Find related papers by JEL classification: G12 - Financial Economics - - General Financial Markets - - - Asset Pricing G15 - Financial Economics - - General Financial Markets - - - International Financial Markets E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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