Systemic Stock Risks vs. Asset Bundling diversified stock basket

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Systemic Stock Risks vs. Asset Bundling
diversified stock basket 29 loss (Shanghai,
SP 500) diversified natural resources basket
7 gain (Gold/Nat. Res)Asset Diversification
Lessens Systemic Idiosyncratic Risk!
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Data, Methods, and Models

• Endogeneity and serial correlation (deep
  persistence of variables)
• Explicitly account for international financial
  openness
• AJRY 2008 approach (OLS to GMM-sys)
• We use WIID data with Dollar-Kraay 2002
  adjustments and the UNIDO wage data with
  Galbraith Kum 2005 EHII adjustments.

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Correlations, GINI (s-1) Polity (s), 1955-84
vs. 1990-2007(5 year panel averages, except
2005-07)
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