Research project Trade, Trade Imbalances, and Asset Pricing
Total trade and trade imbalances are always one of the main concerns for policymakers because they are directly connected to the contagion of economic crises and financial markets instability.
International trade linkages serve as a channel through which unexpected changes in economic policies, sovereign creditworthiness, etc., in one country, spread to other countries. In this project, we propose new approaches to investigate the impact of international trade and trade imbalances on international financial markets.
Project description
In this program, we propose new approaches to investigate the impact of international trade and trade imbalances on international financial markets. Our project will contribute to the understanding of the role of international trade network as a channel for risk transmission and its importance for asset prices.
Economic theory predicts that the trade imbalance, the deficit of a country’s current account, affects the country’s currency depreciation in face of a large shock. This research project proposes a new trade imbalance network to explore the link between network centrality and currency risk premia.
We also examine whether the trade network is a channel for transmission of shocks to the term structure of interest rates. It establishes trade sub-networks investigating how changes in expected short-rate and the interest rate term premium can be transmitted among exporting and importing countries.
Existing research finds that industries which are more central in the US input-output network are more exposed to systematic risk and hence earn higher returns. Does the same line of argument apply in the cross-country context? We propose a measure of “global centrality” and examine its explanatory power for equity returns.
Project members
Project managers
Ai Jun Hou
Professor
Members
Michal Dzielinski
Assistant Professor
Caihong Xu
Assistant Professor
Xiaoxia Ye
Associate Professor (Senior Lecturer) of Finance
