Country Size, Currency Unions, and International Asset Returns

Tarek Hassan

Journal of Finance, 2013, vol. 68, issue 6, 2269-2308

Abstract: Differences in real interest rates across developed economies are puzzlingly large and persistent. I propose a simple explanation: bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy. I show that, indeed, differences in the size of economies explain a large fraction of the cross‐sectional variation in currency returns. The data also support additional implications of the model: the introduction of a currency union lowers interest rates in participating countries, and stocks in the nontraded sector of larger economies pay lower expected returns.

Date: 2013
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https://doi.org/10.1111/jofi.12081

Related works:
Working Paper: Country Size, Currency Unions, and International Asset Returns (2012)
Working Paper: Country Size, Currency Unions, and International Asset Returns (2012)
Working Paper: Country Size, Currency Unions, and International Asset Returns (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:68:y:2013:i:6:p:2269-2308

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