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How complete are international fianncial markets?

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Author Info

  • Alexis Anagnostopoulos
  • Gregorios Siourounis

Abstract

The 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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File URL: http://econ.uop.gr/~econ/RePEc/pdf/UOP_WP_16_09_2009.pdf
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Bibliographic Info

Paper provided by University of Peloponnese, Department of Economics in its series Working Papers with number 00037.

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Length: 32 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:uop:wpaper:00037

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Keywords: complete vs. incomplete international financial markets; net foreign assets accumulation; output growth; panel unit root tests.;

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