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Cambridge Endowment for Research in Finance (CERF)

 

Elisa Faraglia

Foreign Direct Investment as a Determinant of Cross-Country Stock Market Comovement

We develop a theoretical framework in order to investigate the link between two recent trends: (i) the rise in cross-country stock market correlations over the past three decades, and (ii) the increase in global foreign direct investment (FDI) positions over the same period. Our objective is twofold: first, we investigate empirically the channel through which the rise in global stock market correlations is associated with the observed increase in global FDI. Second, we develop a two-country stochastic asset pricing model with multinational firms that allows us to quantify the extent to which the recent rise in global FDI can account for the observed increase in cross-country stock market comovement.


Project Update - August 2021

Project Update - August 2020

Title of research: Union Debt Management

Union Debt Management - The advent of the EURO and the recent European debt crisis have sparked a huge economic literature that studies how idiosyncratic and aggregate shocks can be managed in a currency union once the individual countries give up their monetary policy independence. In this project we want to analyse how debt management could help each country to smooth different types of fiscal shocks. The aim of the project is twofold. The first is empirical: using a data set of debt portfolios of five Euro Area governments, we want run a battery of panel VARs identifying separately idiosyncratic and aggregate spending shocks to study whether government portfolios have been effective to absorb idiosyncratic and aggregate shocks. The second aim is theoretical. We study the role of government debt maturity in a two country currency union model without fiscal transfers, aiming to identify conditions and bond characteristics under which debt management can complete the markets.

Project Update - April 2020

Project Update - August 2019

Project Update - April 2019

Project Update - August 2018