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)


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
Issue number3
Publication statusPublished - 2006 Dec 1



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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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