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The international diversification puzzle is not worse than you think

  • Christian Julliard

    (Princeton University and University of Salerno)

This paper offers two main contributions. First, it shows how the Baxter and Jermann (1997) claim that, once we consider human capital risk, the international diversification puzzle is worse than we think, is based on an econometric misspecification rejected by the data. Second, it outlines how, once the misspecification is corrected, the results are reverted: considering the human capital risk does not unequivocally worsen the puzzle and in some cases helps explaining it. JEL Classification: F30, G11, G12

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File URL: http://econwpa.repec.org/eps/if/papers/0301/0301004.pdf
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Paper provided by EconWPA in its series International Finance with number 0301004.

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Length: 36 pages
Date of creation: 09 Jan 2003
Date of revision:
Handle: RePEc:wpa:wuwpif:0301004
Note: Type of Document - Acrobat PDF; prepared on IBM PC ; pages: 36; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-98, December.
  2. Obstfeld, Maurice, 1992. "Risk-Taking, Global Diversification, and Growth," CEPR Discussion Papers 688, C.E.P.R. Discussion Papers.
  3. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-80, March.
  4. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  6. John Y. Campbell & Robert J. Shiller, 1988. "Stock Prices, Earnings and Expected Dividends," NBER Working Papers 2511, National Bureau of Economic Research, Inc.
  7. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
  8. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  9. N. Gregory Mankiw & Stephen P. Zeldes, 1990. "The Consumption of Stockholders and Non-Stockholders," NBER Working Papers 3402, National Bureau of Economic Research, Inc.
  10. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-97, April.
  11. Kim, Jae-Young, 1994. "Bayesian Asymptotic Theory in a Time Series Model with a Possible Nonstationary Process," Econometric Theory, Cambridge University Press, vol. 10(3-4), pages 764-773, August.
  12. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  13. Christopher A. Sims & Tao Zha, 1996. "Bayesian methods for dynamic multivariate models," FRB Atlanta Working Paper 96-13, Federal Reserve Bank of Atlanta.
  14. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  15. Brainard, William C & Tobin, James, 1992. "On the Internationalization of Portfolios," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 533-65, October.
  16. Cole, Harold, 1988. "Financial Structure and International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(2), pages 237-59, May.
  17. Harold L. Cole & Maurice Obstfeld, 1989. "Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?," NBER Working Papers 3027, National Bureau of Economic Research, Inc.
  18. repec:cup:etheor:v:10:y:1994:i:3-4:p:764-73 is not listed on IDEAS
  19. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, vol. 40(2), pages 219-254, February.
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