Is low international risk sharing consistent with a high equity premium? A reconciliation of two puzzles

Parantap Basu, Kenji Wada

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

In an incomplete market setting, we show that a pricing kernel exists, which reconciles the observed smooth real exchange rates with high domestic equity premium and low international risk sharing. The estimation results based on the US-Japanese data provide plausible estimates of the deep parameters.

Original languageEnglish
Pages (from-to)436-442
Number of pages7
JournalEconomics Letters
Volume93
Issue number3
DOIs
Publication statusPublished - 2006 Dec

Fingerprint

International risk sharing
Reconciliation
Equity premium
Real exchange rate
Pricing kernel
Incomplete markets

Keywords

  • C-D discount factor
  • Equity premium
  • International risk sharing

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Is low international risk sharing consistent with a high equity premium? A reconciliation of two puzzles. / Basu, Parantap; Wada, Kenji.

In: Economics Letters, Vol. 93, No. 3, 12.2006, p. 436-442.

Research output: Contribution to journalArticle

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