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Financial Markets and International Risk Sharing

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  • Martin Schmitz

Abstract

Panel analysis of 20 industrial countries shows evidence for pro-cyclicality of capital gains on domestic stock markets - in particular over a medium term horizon. Thus, with cross-border ownership of portfolio equity investments, potential for international smoothing of domestic output fluctuations by means of the capital gains channel is found. Individual country analysis reveals substantial heterogeneity of cyclicality patterns. Evidence suggests that this cross-country variation can be explained by the level of economic development and the size of financial markets.
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  • Martin Schmitz, 2010. "Financial Markets and International Risk Sharing," Open Economies Review, Springer, vol. 21(3), pages 413-431, July.
  • Handle: RePEc:kap:openec:v:21:y:2010:i:3:p:413-431
    DOI: 10.1007/s11079-008-9100-x
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    14. Philip R. Lane & Gian Maria Milesi-Ferretti, 2008. "International Investment Patterns," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 538-549, August.
    15. Philip Lane, 2001. "Do international investment income flows smooth income?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(4), pages 714-736, December.
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    Citations

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    Cited by:

    1. Philip R. Lane, 2008. "EMU and Financial Market Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp248, IIIS.
    2. Martin Schmitz, 2013. "Financial Markets And International Risk Sharing In Emerging Market Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 18(3), pages 266-277, July.
    3. Davide Furceri & Aleksandra Zdzienicka, 2015. "The Euro Area Crisis: Need for a Supranational Fiscal Risk Sharing Mechanism?," Open Economies Review, Springer, vol. 26(4), pages 683-710, September.
    4. Agustin S. Benetrix, 2015. "International Risk Sharing and the Irish Economy," The Economic and Social Review, Economic and Social Studies, vol. 46(1), pages 29-49.
    5. Guido Baldi & Björn Bremer & Thore Schlaak, 2017. "International Investments and Current Account Imbalances: The Importance of Valuation Changes," DIW Roundup: Politik im Fokus 117, DIW Berlin, German Institute for Economic Research.
    6. Cimadomo, Jacopo & Ciminelli, Gabriele & Furtuna, Oana & Giuliodori, Massimo, 2020. "Private and public risk sharing in the euro area," European Economic Review, Elsevier, vol. 121(C).
    7. Thierry Bracke & Martin Schmitz, 2011. "Channels of international risk-sharing: capital gains versus income flows," International Economics and Economic Policy, Springer, vol. 8(1), pages 45-78, April.
    8. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS.
    9. Eleonora Pierucci & Luigi Ventura, 2011. "On international risk sharing and financial globalization: some gloomy evidence," Departmental Working Papers of Economics - University 'Roma Tre' 0124, Department of Economics - University Roma Tre.
    10. Bergant, Katharina, 2021. "The role of stock-flow adjustment during the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 110(C).
    11. Katharina Bergant, 2017. "The Role of Stock-Flow Adjustment during the Global Financial Crisis," Trinity Economics Papers tep1317, Trinity College Dublin, Department of Economics.
    12. Guido Baldi & Björn Bremer & Thore Schlaak, 2017. "Internationale Investitionen und Leistungsbilanzungleichgewichte: Die Bedeutung von Wertschwankungen," DIW Roundup: Politik im Fokus 117, DIW Berlin, German Institute for Economic Research.
    13. Udo Broll & Peter Welzel & Kit Wong, 2015. "Exchange Rate Risk and the Impact of Regret on Trade," Open Economies Review, Springer, vol. 26(1), pages 109-119, February.

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    More about this item

    Keywords

    International risk sharing; Capital gains; Cross-border investment; Financial globalisation; Business cycle; F21; F30; G15;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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