Basu, P. and Wada, K. (2006) 'Is low international risk sharing consistent with a high equity premium ? a reconciliation of two puzzles.', Economics letters., 93 (3). pp. 436-442.
In an incomplete market setting, we show that a pricing kernel exists, which reconciles the observed smooth real exchange rates with high domestic equity premium and low international risk sharing. The estimation results based on the US–Japanese data provide plausible estimates of the deep parameters.
|Keywords:||Equity premium, International risk sharing, C-D discount factor.|
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|Publisher Web site:||http://dx.doi.org/10.1016/j.econlet.2006.06.018|
|Record Created:||20 Feb 2009|
|Last Modified:||03 Mar 2010 15:32|
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