Faculty of Economics and Business Administration Publications Database

Capital Market Integration and Consumption Risk Sharing over the Long Run

Selected
Authors:
Rangvid, Jesper
Santa-Clara, Pedro
Source:
Volume: 103
Pages: 27 - 43
Month: November
ISSN-Print: 0022-1996
Link External Source: Online Version
Year: 2016
Keywords: Market integration; Consumption risk sharing; Long-run international data
Abstract:

We empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012. We show that there has been considerable variation over time in the degrees of capital market integration and consumption risk sharing and that higher capital market integration forecasts more consumption risk sharing in the future. This finding is robust to controlling for trade openness and exchange rate volatility as alternative drivers of risk sharing. Finally, we calculate the welfare costs of imperfect consumption risk sharing and find that these costs vary over time, line up with variation in risk sharing, and are quite substantial during periods of low risk sharing.

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