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Financial Markets And International Risk Sharing In Emerging Market Economies

  • Martin Schmitz

In light of rapidly increasing foreign equity liability positions of emerging market economies, we test for a necessary condition of international risk sharing, namely for systematic patterns between idiosyncratic output fluctuations and financial market developments. Panel analysis of 22 emerging market economies shows strong evidence for pro-cyclicality of capital gains on domestic stock markets both over short and medium term horizons. This implies that domestic output fluctuations can be hedged through cross-border ownership of financial markets. JEL Classification: F21, F30, G15

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 18 (2013)
Issue (Month): 3 (07)
Pages: 266-277

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Handle: RePEc:wly:ijfiec:v:18:y:2013:i:3:p:266-277
Contact details of provider: Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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  1. Alberto Alesina & Guido Tabellini, 2005. "Why is fiscal policy often procyclical?," Harvard Institute of Economic Research Working Papers 2090, Harvard - Institute of Economic Research.
  2. André Faria & Philip R. Lane & Paolo Mauro & Gian Maria Milesi-Ferretti, 2007. "The Shifting Composition of External Liabilities," The Institute for International Integration Studies Discussion Paper Series iiisdp190, IIIS.
  3. 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.
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  7. Devereux, Michael B. & Sutherland, Alan, 2009. "A portfolio model of capital flows to emerging markets," Journal of Development Economics, Elsevier, vol. 89(2), pages 181-193, July.
  8. Martin Schmitz, 2007. "Financial Markets and International Risk Sharing," The Institute for International Integration Studies Discussion Paper Series iiisdp233, IIIS.
  9. Balli, Faruk & Kalemli-Ozcan, Sebnem & Sørensen, Bent E, 2011. "Risk Sharing through Capital Gains," CEPR Discussion Papers 8643, C.E.P.R. Discussion Papers.
  10. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
  11. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
  12. Marianne Baxter, 2011. "International Risk Sharing in the Short Run and in the Long Run," NBER Working Papers 16789, National Bureau of Economic Research, Inc.
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