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Financial Markets and International Risk Sharing

  • Martin Schmitz

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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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp233.

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Date of creation: 09 Nov 2007
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Handle: RePEc:iis:dispap:iiisdp233
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