Working Paper

International R&D Spillovers and Asset Prices

Abstract: We 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 our 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. Our model predicts that country-pairs that share more R&D have less volatile exchange rates and more correlated stock market returns. Using data from a sample of 19 developed countries, we provide suggestive empirical evidence in favor of our model?s predictions.

Keywords: international asset pricing; recursive preferences; long-run risks; innovation; international diffusion;

JEL Classification: F3; F4; O3;

https://doi.org/10.20955/wp.2015.041

Status: Published in Journal of Financial Economics

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2015-12-02

Number: 2015-41

Note: Forthcoming in Journal of Financial Economics