Dollar-Weighted Return on Aggregate Corporate Sector: How is it Distributed Across Countries?

Abstract

This paper computes the dollar-weighted returns (DWRs) on the aggregate corporate sector in each of the 43 sample countries, and shows that the DWRs in U.S. dollars are similar across countries. In contrast, the local-currency DWRs are found to be different across countries, suggesting a role played by currency in the parity of DWRs. It turns out that countries that are financially closed have a higher DWR in local currency but a lower return on their currencies and, consequently, DWRs in U.S. dollars converge across countries. The speed of convergence in DWR (in U.S. dollars) is also related to financial openness. That is, the convergence of a country’s DWR to the global benchmark is faster, the more financially open is the country. Taken together, our results are consistent with a version of efficient international capital markets where capital flows in such a way that the marginal product of capital is equalized across countries.