World betas, consumption growth, and financial integration
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Date
2011
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ELSEVIER SCI LTD
Abstract
We define a country's beta as the covariance of domestic consumption growth with world consumption growth scaled by the world's variance. Beta is related to a country's risk-taking position in models of international financial integration. Empirically, we find that an increase in beta leads to an increase in average consumption growth. This beta-growth relationship is present only among countries with high levels of financial openness, and is absent among the rest. However, we cannot fully discard the presence of non-financial factors (e.g., trade openness) as determinants of the beta-growth relationship. (C) 2011 Elsevier Ltd. All rights reserved.
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Keywords
Financial integration, International risk-sharing, Risk-taking, Consumption growth, CAPITAL ACCOUNT LIBERALIZATION, EXPECTED STOCK RETURNS, CROSS-SECTION, ECONOMIC-GROWTH, VOLATILITY, MODEL, RISK, EQUILIBRIUM, INDUSTRIAL, COUNTRIES