How complete are international fianncial markets?
AbstractThe aim of this paper is to develop an indirect test of international asset markets incompleteness. We show that when a country issues a full set of contingent claims, net foreign assets accumulation and growth rate of output are stationary, mean reverting processes. Examining a panel of 60 developed and developing countries and assessing stationarity with panel unit root tests reveals that net foreign assets accumulation is a non-stationary process whereas growth rate of output is a stationary process regardless of income or region stratum. We then show that this behavior is best accounted by a model of incomplete markets, where agents issue only one-period risk free assets.
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Bibliographic InfoPaper provided by University of Peloponnese, Department of Economics in its series Working Papers with number 00037.
Length: 32 pages
Date of creation: 2009
Date of revision:
complete vs. incomplete international financial markets; net foreign assets accumulation; output growth; panel unit root tests.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
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