The Risky Capital of Emerging Markets
Ina Simonovska (),
Espen Henriksen and
Joel David ()
No 125, 2016 Meeting Papers from Society for Economic Dynamics
Poor and emerging markets exhibit (1) high average returns to capital and (2) large exposures to movements in US returns, measured by the â€˜betaâ€™ of the returns to the foreign asset on the returns to its US counterpart. We document these facts in detail for two asset classes - stock market returns and the return to aggregate capital - and we provide further evidence from a third class - sovereign bonds. We use a series of endowment economies to explore whether consumption-based risk faced by a US investor can reconcile these findings. We find that long-run risk, i.e., risk due to uncertainty over economic growth rates abroad, is a promising channel - our calibrated model implies return disparities at least 55% as large as those in the data. From the perspective of the US investor, fact (2), although not a sufficient statistic, is informative about the extent of long-run risk in foreign assets, and so about fact (1).
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed
Downloads: (external link)
Working Paper: The Risky Capital of Emerging Markets (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:125
Access Statistics for this paper
More papers in 2016 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 ().