Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153317
Authors: 
De Santis, Roberto A.
Sarno, Lucio
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper No. 883
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper considers a stylized asset pricing model where the returns from exchange rates, stocks and bonds are linked by basic risk-arbitrage relationships. Employing GMM estimation and monthly data for 18 economies and the US (treated as the domestic country), we identify through a simple test the countries whose assets strongly comove with US assets and the countries whose assets might other larger diversification benefits. We also show that the strengthening of the comovement of returns across countries is neither a gradual process nor a global phenomenon, reinforcing the case for international diversification. However, our results suggest that fund managers are better other constructing portfolios selecting assets from a subset of countries than relying on either fully inter-nationally diversified or purely domestic portfolios.
Subjects: 
asset pricing
Exchange Rates
international parity conditions
market integration
stochastic discount factor
JEL: 
F31
G10
Document Type: 
Working Paper

Files in This Item:
File
Size
967.19 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.