International Trade in Assets under Uncertainty: A Theoretical Analysis

Jae Ho Cho and Myung Hoon Yi
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Jae Ho Cho: University of Ulsan
Myung Hoon Yi: The Bank of Korea

Korean Economic Review, 1994, vol. 10, 181-190

Abstract: In the recent article Svensson (1988) developed a theory of the determinants of international trade in real assets under uncertainty. This paper examines how differences between countries with regard to preference, and perceived returns to savings determine autarky asset price differences, and consequently the trade pattern in risky assets: In this paper we concentrate on the effect of differences in the degree of relative risk aversion, the elasticity of substitution and the rate of time preference on the trade in risky asset among countries. To analyze this, we extend Svensson's model by using a generalized utility function developed by Epstein (1987). Some clear and general interpretations not expected from a conventional additive preference structure can be made.

Date: 1994
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