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Author:Athanasoulis, Stefano 

Journal Article
Macro markets and financial security
Uncertainty about national income growth poses significant macroeconomic risk to households all over the world. To help reduce investors' exposure, researchers have proposed a controversial new set of security markets called macro markets. These international markets would trade long-term claims on the income of an entire country or region. For example, in a macro market for the United States, an investor could buy a claim on the U.S. national income and then receive dividends equal to a fraction of national income for as long as the claim is held. Although many barriers stand in the way of the markets' development - including investors' focus on short-term portfolio performance, sizable startup costs, and contract enforcement difficulties - the potential benefits of these markets are great.
AUTHORS: Van Wincoop, Eric; Shiller, Robert J.; Athanasoulis, Stefano
DATE: 1999-04

Report
Growth uncertainty and risksharing
We propose a new methodology to evaluate the gains from global risksharing that is closely connected to the empirical growth literature. We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific deviations from world growth on a wide set of variables in the information set. Since this residual risk can be entirely hedged, we use it to obtain a measure of welfare gain that can be achieved by a representative country. We find that nations can reap very large benefits from engaging in such risksharing arrangements. Using post-war data, the gain for a 35-year horizon, corresponding to an equivalent permanent increase in consumption, is 6.6% when based on a set of 49 countries, and 1.5% when based on 21 OECD countries. Using historical data from 1870 to 1990, we find that the potential gain for a 120-year horizon ranges from 4.9% for a small set of rich countries to 16.5% for a broad set of 24 countries.
AUTHORS: Van Wincoop, Eric; Athanasoulis, Stefano
DATE: 1997-10-01

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