EconPapers    
Economics at your fingertips  
 

International Capital Flows Returns and World Financial Integration

Martin Evans () and Viktoria Hnatkovska ()

No 60, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: International capital flows have increased dramatically since the 1980s, with much of the increase being due to trade in equity and debt markets. Such developments are often attributed to the increased integration of world financial markets. We present a model that allows us to examine how greater integration in world financial markets affects the behavior of international capital flows and financial returns. Our model predicts that international capital flows are large (in absolute value) and very volatile during the early stages of financial integration when international asset trading is concentrated in bonds. As integration progresses and households gain access to world equity markets, the size and volatility of international bond flows fall dramatically but continue to exceed the size and volatility of international equity flows. This is the natural outcome of greater risk sharing facilitated by increased integration. We find that the equilibrium flows in bonds and stocks are larger than their empirical counterparts, and are largely driven by variations in equity risk premia. The paper also makes a methodological contribution to the literature on dynamic general equilibrium asset-pricing. We implement a new technique for solving a dynamic general equilibrium model with production, portfolio choice and incomplete markets

Keywords: Globalization; Portfolio Choice; Financial Integration; Incomplete Markets; Asset Prices. (search for similar items in EconPapers)
JEL-codes: D52 F36 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2006-12-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.georgetown.edu/faculty/evansm1/wpapers_files/globalv1.pdf main text (application/pdf)
http://repec.org/sed2006/up.6185.1136816385.pdf (application/pdf)

Related works:
Journal Article: International capital flows, returns and world financial integration (2014) Downloads
Working Paper: International Capital Flows, Returns and World Financial Integration (2005) Downloads
Working Paper: International Capital Flows, Returns and World Financial Integration (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:60

Access Statistics for this paper

More papers in 2006 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2019-08-20
Handle: RePEc:red:sed006:60