nep-ifn New Economics Papers
on International Finance
Issue of 2018‒07‒23
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Financial frictions, international capital flows and welfare By Taddei, Filippo
  2. Gambling, Risk Appetite and Asset Pricing By Carlos Viana de Carvalho; Daniel Cordeiro; Ruy Ribeiro; Eduardo Zilberman

  1. By: Taddei, Filippo
    Abstract: The connection between the financial crisis and global imbalances is controversial. This paper argues that this relationship is likely to be connected to the existence of heterogenous financial frictions in different domestic credit markets. By developing a general equilibrium model where adverse selection and limited pledgeability coexist, this work highlights why adverse selection may play a pivotal role in determining the different (often opposing) welfare effects of international capital flows on originating and destination countries. This perspective also advances an analytical framework that is flexible enough to analyze the global effects on investment allocation of the ”Saving Glut”, of the policies facilitating financial integration and macro-prudential policy. JEL Classification: D53, E2, F3
    Keywords: asymmetric information, international capital flows, limited pledgeability, macro-prudential policy, welfare
    Date: 2018–07
  2. By: Carlos Viana de Carvalho (Banco Central do Brasil); Daniel Cordeiro (XP Investimentos); Ruy Ribeiro (PUC-Rio); Eduardo Zilberman (PUC-Rio)
    Abstract: A measure of the propensity to gamble in casinos constructed without any asset price data provides relevant information for asset pricing. This measure of risk appetite improves the fit of conditional asset pricing models such as the conditional CAPM, explains crosssectional differences in future returns for portfolios sorted on various characteristics, and helps forecast market and portfolio excess returns. The relationship between risk appetite and asset prices appears to be mainly explained by simultaneous changes in risk and risk premia.
    Keywords: Asset Pricing, Cross-Section, Predictability, Factors, CAPM, Conditional Model, Gambling, Casino. JEL Classification: G12, G02.
    Date: 2018–03

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