Trade in Risky Assets

Lars Svensson

American Economic Review, 1988, vol. 78, issue 3, 375-94

Abstract: A theory of the international trade pattern in risky assets is developed by applying the law of comparative advantage to asset trade. According to this l aw, there is a tendency for a country to import assets that have rela tively high autarky prices. It is examined how autarky prices are aff ected by international differences in stochastic properties of output /endowments, the rate of time preference, the degree of risk aversion , and subjective beliefs, and how such differences predict overall ca pital account deficits or surpluses as well as the composition of the capital account into trade in specific risky assets. Copyright 1988 by American Economic Association.

Date: 1988
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