Essays in international risk sharing : Currency strategies and credit cycles

Sammanfattning: In order to earn excess returns, investors must take on risk. For an international investor that risk can be characterized as either country-specific or global. While the former risks are contained within a given country, global risks are spread across economies and can potentially affect investors around the world. Hence, global risks are shared among international investors. Understanding the origin of these risks, how they behave over time, and how they are transmitted to global asset prices (and possibly to the real economy), is important to researchers, policy makers and other market participants. Moreover, as the globalization continues to evolve, economies become more integrated. As a result, disturbances that were previously contained within a given country now have a stronger tendency to spread to other economies. Hence, there are good reasons to believe that global risks will be more dominant in the future, and therefore also more imperative in determining asset prices.This doctoral thesis - consisting of three independent research papers - is aimed at improving our understanding of international risk sharing. In the first paper I find that global interest rates contain predictive information about the US dollar. In the second paper I show that the correlation between two risk factors in currency markets captures a time-varying risk premium. In the final paper I study firms’ cash holdings through the lens of a real business cycle model with a financial friction. This model belongs to a group of models that has received a lot of attention in the aftermath of the global financial crisis, in which disturbances in the US were spread to the rest of the global economy.