Working Paper: NBER ID: w4655
Authors: Charles Engel; John H. Rogers
Abstract: We examine the factors that determine the differences in ex ante returns on equities in eleven Pacific Basin countries. Our concern is whether real return differentials are primarily caused by nominal return differentials or expected changes in real exchange rates. We find that nominal return differentials account for most of the difference, which suggests that either there is not free mobility of capital between the countries of our study or that there are significant differences in the riskiness of returns across countries. We do not find a significant relationship between the size of the return differentials and the flexibility of the nominal exchange rate.
Keywords: equities; capital mobility; Pacific Basin; nominal returns; real returns
JEL Codes: F21; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nominal return differentials (G19) | Expected real returns (G17) |
| Differences in returns (G19) | Relative riskiness of equity investments (G11) |