Erschienen in:Robert H. Smith School Research Paper ; No. RHS 2858834
Umfang:
1 Online-Ressource (50 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.2858834
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 25, 2016 erstellt
Beschreibung:
We develop an incomplete markets framework to synthesize domestic and foreign stochastic discount factors (SDFs) that are consistent with limited international risk sharing. The fundamental departure in our paper is that exchange rate growth need not equal the ratio of SDFs, and we develop a restriction that precludes “good deals” in international economies with incomplete markets. Our innovation is to study an incomplete markets problem that is consistent with SDFs that (i) are nonnegative, (ii) correctly price returns, and (iii) disallow “good deals.”