Please use this identifier to cite or link to this item: http://buratest.brunel.ac.uk/handle/2438/9723
Title: International capital markets structure, preferences and puzzles In a "US-China World"
Authors: Caporale, GM
Donadelli, M
Keywords: Macro-anomalies;Financial autarky;Complete markets;Long-run innovations;Home bias
Issue Date: 2015
Publisher: Elsevier
Citation: Journal of International Financial Markets, Institutions and Money, (29 December 2014)
Abstract: The US-China data suggest that (i) the real exchange rate (RER) volatility puzzle (high RER volatility relative to consumption volatility), (ii) the Backus-Smith anomaly (negative correlation between the RER and consumption differentials), (iii) the consumption correlation puzzle (relatively low cross-country consumption correlation) became more severe in the aftermath of China's stock market liberalization. This indicates that international macro-anomalies do not show up exclusively among pairs of advanced economies. In an international endowment economy context, we show that the combination of recursive preferences and long-run risk allows for the simultaneous resolution of these anomalies. In contrast to standard macro models, this results holds even in the presence of full financial integration, segmented goods markets and non-negligible changes in parameter values.
URI: http://www.sciencedirect.com/science/article/pii/S1042443114001553
http://bura.brunel.ac.uk/handle/2438/9723
DOI: http://dx.doi.org/1016/j.intfin.2014.12.006
ISSN: 1873-0612
Appears in Collections:Dept of Economics and Finance Research Papers

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