Implications of Incomplete Markets for International Economies

• 成果类型: Article
• 署名作者: Bakshi, Gurdip; Cerrato, Mario; Crosby, John
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Temple University; University of Glasgow; University of Technology Sydney
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhx120
• 发表日期: 2018
• 页码: 4017
• 关键词: asset prices; exchange-rates; term structure; long-run; RISK; consumption; explain; returns; premium; models

摘要

We develop a restriction that precludes implausibly high reward-for-risk in incomplete international economies to consider a theoretical problem that characterizes a lower bound on the covariance between stochastic discount factors (SDFs) subject to correct pricing. The problem is analytically solvable and synthesizes domestic and foreign SDFs into spanned and unspanned components. Our novelty is that exchange rate growth need not equal the ratio of SDFs and that the SDF correlations are plausibly lowered. Exploiting the realities of cross-country correlations of macroeconomic quantities, namely, consumption, wealth, dividend growths, and asset returns, our empirical investigation refutes the specification of complete markets.