Assistant Professor of Finance
International Asset Pricing; Recursive Preferences; Long-Run Risk; Innovation; International Diffusion; JEL Classification: F31; F43; G15; O31;
The authors study the international propagation of long-run risk in the context of a general equilibrium model with endogenous growth.Innovation and international diffusion of technologies are the channels at the core of the authors' mechanism. A calibrated version of the model matches several asset pricing and macroeconomic quantity moments, alleviating some of the puzzles highlighted in the international macro-finance literature.The authors' model predicts that country pairs that share more research and development (R&D) have less volatile exchange rates and more correlated stock market returns. Using data from a sample of 19 developed countries, the authors provide suggestive empirical evidence in favor of their model’s predictions.