Can fundamentals explain cross-country correlations of asset returns?
Fernando Restoy () and
Rosa Rodríguez ()
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Fernando Restoy: Banco de España
Rosa Rodríguez: Universidad Carlos III
No 540, Working Papers from Banco de España
Abstract:
Previous studies show that existing correlations between national returns are higher than correlations between the national growth rates of fundamental variables. This paper examines the ability of intertemporal asset pricing models to explain crosscountry correlations of national returns. We find that when capital markets are assumed to be fully integrated, a simple intertemporal general equilibrium model is able to explain the observed co variability of domestic asset returns but generates too little variability in those returns. Results improve considerably if a less restrictive version is employed. In that setting, both domestic variability and cross country co variability of returns are consistent with capital market integration.
Keywords: Asset pricing models; cross-country correlations (search for similar items in EconPapers)
JEL-codes: E44 G12 G15 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-11
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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/05/Fic/dt0540e.pdf First version, November 2005 (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0540
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