Basu, P. and Semenov, A. and Wada, K. (2011) 'Uninsurable risk and financial market puzzles.', Journal of international money and finance., 30 (6). pp. 1055-1089.
This paper develops an integrated model, which addresses the recent Brandt, Cochrane and Santa-Clara (2006) puzzle of reconciling low international risk sharing with a high and variable equity premium. In addition, a new currency risk premium puzzle is also addressed. Following Kocherlakota and Pistaferri (2007), we examine two market structures: (i) where private risk cannot be insured and (ii) where the private risk can be partially insured by striking long term insurance contract with truth revelation constraint. Our GMM estimation based on the US-UK .nancial and cross-sectional household spending data lends support to the second market environment.
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|Publisher Web site:||http://dx.doi.org/10.1016/j.jimonfin.2011.05.012|
|Record Created:||18 May 2011 10:05|
|Last Modified:||02 Aug 2011 12:09|
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