Tài liệu ASSESSING THE BENEFITS OF INTERNATIONAL PORTFOLIO DIVERSIFICATION IN BONDS AND STOCKS ppt

WORKING PA PER SERIES

NO 883 / MARCH 2008

ASSESSING THE BENEFITS

OF INTERNATIONAL

PORTFOLIO

DIVERSIFICATION IN

BONDS AND STOCKS

by Roberto A. De Santis

and Lucio Sarno

Format: (210.00 x 297.00 mm); Date: Mar 13, 2008 16:49:21; Output Profile: SPOT ISO Coated v2 (ECI); Preflight: Failed

WORKING PAPER SERIES

NO 883 / MARCH 2008

In 2008 all ECB

publications

feature a motif

taken from the

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ASSESSING THE BENEFITS

OF INTERNATIONAL PORTFOLIO

DIVERSIFICATION IN BONDS

AND STOCKS 1

by Roberto A. De Santis 2 and Lucio Sarno 3

This paper can be downloaded without charge from

http://www.ecb.europa.eu or from the Social Science Research Network

electronic library at http://ssrn.com/abstract_id=1105383.

1 This paper was partly written while Lucio Sarno was a Visiting Scholar at the International Monetary Fund. We are grateful for constructive

comments at various stages of this paper to Lorenzo Cappiello, John Cochrane and Robert Engle. The authors alone are responsible for

the views expressed in the paper and for any errors that may remain.

2 Corresponding author: European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany; Tel: +49 69 1344 0;

e-mail: [email protected]

3 University of Warwick and Centre for Economic Policy Research (CEPR). Contact address: Finance Group,

Warwick Business School, University of Warwick, Coventry CV4 7AL,

United Kingdom; e-mail: [email protected]

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ISSN 1561-0810 (print)

ISSN 1725-2806 (online)

3

ECB

Working Paper Series No 883

March 2008

Abstract 4

Non-technical summary 5

1 Introduction 7

2 A factor pricing model of

exchange rates, bonds and stocks 10

2.1 Setup 10

2.2 Uncovered interest rate parity 11

2.3 Uncovered return parity for

equities and bonds 11

2.4 Equity and bond returns equilibrium 12

2.5 The full parity system 12

3 Empirical implementation 13

3.1 GMM estimation and

restrictions to test comovement 13

3.2 Stochastic discount factor 14

3.3 Risk premia 15

4 Data 15

5 Empirical results 17

5.1 The base case 17

5.2 The US discount factor 18

5.3 The model with time-varying risk premia 19

5.4 Performance of global

and domestic portfolios 20

5.5 Time-varying comovement from the 1980s 22

6 Concluding remarks 23

References 25

Tables and fi gures 29

European Central Bank Working Paper Series 41

CONTENTS