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International R&D spillovers and asset prices

Federico Gavazzoni and Ana Maria Santacreu

Journal of Financial Economics, 2020, vol. 136, issue 2, 330-354

Abstract: We study the international propagation of long-run risk in the context of a general equilibrium model with endogenous growth. Innovation and international diffusion of technologies are the channels at the core of our mechanism. A calibrated version of the model matches several asset pricing and macroeconomic quantity moments, alleviating some of the puzzles highlighted in the international macro-finance literature. Our model predicts that country pairs that share more research and development (R&D) have less volatile exchange rates and more correlated stock market returns. Using data from a sample of 19 developed countries, we provide suggestive empirical evidence in favor of our model’s predictions.

Keywords: International asset pricing; Recursive preferences; Long-run risk; Innovation; International diffusion (search for similar items in EconPapers)
JEL-codes: F31 F43 G15 O31 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:2:p:330-354

DOI: 10.1016/j.jfineco.2019.09.009

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