The Term Structures of Coentropy in International Financial Markets

• 成果类型: Article
• 署名作者: Chabi-Yo, Fousseni; Colacito, Riccardo
• 署名单位: University of Massachusetts System; University of Massachusetts Amherst; University of North Carolina; University of North Carolina Chapel Hill; University of North Carolina School of Medicine; University of North Carolina; University of North Carolina Chapel Hill; University of North Carolina School of Medicine
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2017.3017
• 发表日期: 2019
• 页码: 3541-3558
• 关键词: finance; asset pricing; International finance; statistics; correlation

摘要

We propose a new entropy-based correlation measure (coentropy) to evaluate the performance of international asset pricing models. Coentropy captures the codependence of two random variables beyond normality. We document that the coentropy of international stochastic discount factors (SDFs) can be decomposed into a series of entropy-based correlations of permanent and transitory components of the SDFs. We employ the cross section of G-10 countries to obtain model-free estimates of all the components of coentropy at various horizons and we show that the generalization of the long-run risk model featuring two predictable components of consumption growth rates, global disasters, and recursive preferences can account for the composition of codependence at all horizons.