This paper empirically investigates international equity investors' foreign portfolios before and during the financial crisis by estimating a gravity model for 22 source and 42 destination countries. The results show that international stock market diversification provides large gains during the...

Following the well-known approach by Adler and Dumas (1984) we evaluate the foreign exchange rate exposure of nations. Results based on data from 27 countries show that national foreign exchange rate exposures are significantly related to the current trade balance variables of corresponding...

While the trade channel indicates that an exchange rate depreciation will stimulate domestic economic activity, the financial channel can have the opposite effect. When banks and non-banks have foreign currency liabilities, an exchange rate depreciation has valuation effects that can lead to a...

This paper studies the impact of stock market development on cross country relative prices (the real exchange rate). A nonlinear relationship is uncovered in the cross section: prices and the stock market increase together in the beginning; then prices fall as the stock market continues to...

We develop a model predicting two channels through which creditor protection enhances the performance of stock prices: the probability of a liquidity crisis leading to a binding investment-finance constraint falls with a strong protection of creditors; the stock prices under the...