Associate Professor within the Department of Finance at the Faculty of Law, Economics and Finance of the University of Luxembourg, Julien Pénasse, received the Best Paper award at the Vienna Symposium on Foreign Exchange Markets 2022 for the paper “International Capital Markets and Wealth Transfers.”
Co-authored with Magnus Dahlquist (Stockholm School of Economics), Christian Heyerdahl Larsen (Indiana University, Kelley School of Business) and Anna Pavlova (London Business School), the paper explores the unequal impacts of global financial stress on different capital markets.
Global stress produces large movements in exchange rates and asset prices. Even when global stock markets fall, the stock markets of wealthy countries, such as the US, fall by less. While the external balance sheet of the US suffers, the US Dollars tends to appreciate, resulting in a wealth transfer towards the US.
In the paper, the authors build a model to illustrate and test the mechanisms of these global stress-driven wealth transfers. The model delivers time-varying currency risk premia, matches key asset pricing moments, and produces realistic external portfolios.
The full paper is available for download on the SSRN database.