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Financial markets and international risk sharing in emerging market economics

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  • Schmitz, Martin

Abstract

In light of rapidly increasing foreign equity liability positions of emerging market economies, we test for a necessary condition of international risk sharing, namely for systematic patterns between idiosyncratic output fluctuations and financial market developments. Panel analysis of 22 emerging market economies shows strong evidence for pro-cyclicality of capital gains on domestic stock markets both over short and medium term horizons. This implies that domestic output fluctuations can be hedged through cross-border ownership of financial markets. JEL Classification: F21, F30, G15

Suggested Citation

  • Schmitz, Martin, 2012. "Financial markets and international risk sharing in emerging market economics," Working Paper Series 1451, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20121451
    Note: 1865580
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    6. Martin Schmitz, 2010. "Financial Markets and International Risk Sharing," Open Economies Review, Springer, vol. 21(3), pages 413-431, July.
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    Cited by:

    1. Joseph P. Joyce, 2018. "External balance sheets as countercyclical crisis buffers," International Economics and Economic Policy, Springer, vol. 15(2), pages 305-329, April.
    2. McQuade, Peter & Schmitz, Martin, 2017. "The great moderation in international capital flows: A global phenomenon?," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 188-212.
    3. Malik, Samreen, 2014. "Ex-ante implications of sovereign default," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 386-397.

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    More about this item

    Keywords

    capital gains; Cross-Border Investment; emerging market economies; financial globalisation; International risk sharing;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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