In order to explain cross-country differences in the effects of capital market liberalization, this paper proposes a model of international asset markets in which investors in different countries each face constraints on portfolio choice. The model demonstrates that liberalization, i.e. the...

We develop a two-country international asset pricing model in which investors are heterogeneous. Exchange rate dynamics give rise to a currency risk premium, uncovered interest parity is violated. Countries whose output growth is expected to be sufficient to satisfy growth in demand have high...

We develop a two-country asset pricing model to explain countries' heterogeneous exposure to global risks and how these affect currency risk premia. In the model we consider separately the valuation of countries' consumption baskets from their sharing of risk. A currency's risk depends not only...