A Dynamic Equilibrium Model of International Portfolio Holdings

Ángel Serrat

81 citations0/0 files storedEconometrica

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Economic theories and models Financial Markets and Investment Strategies Global Financial Crisis and Policies

Abstract

This paper develops a continuous-time equilibrium model of a two-country exchange economy with heterogeneous agents and nontraded goods. Nontraded goods play the role of state variables that shift the marginal utility of traded goods. This affects prices and generates dynamic hedging demands that explain the well documented home bias puzzle in international equity portfolios. When calibrated to both consumption and production data, the model is able to generate significative home bias in equity portfolios. A new methodology, based on Malliavin calculus, is presented to solve for the portfolio policies along the equilibrium path. This methodology allows one to reduce the determination of equilibrium portfolio holdings to the solution of a linear algebraic system, rather than a partial differential equation.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 81 citations exist upstream.

References

2019American Economic Review 1997Foundations of International Macroeconomics 1991Investor Diversification and International Equity Markets 2006The Malliavin Calculus and Related Topics 1989Optimal consumption and portfolio policies when asset prices follow a diffusion process 1995The Malliavin Calculus and Related Topics 1997International Portfolio Investment Flows 1990Tastes and Technology in a Two-Country Model of the Business Cycle : Explaining International Co-Movements

Cited by

2007Goods Trade and International Equity Portfolios 2013Home Bias and Local Contagion: Evidence from Funds of Hedge Funds 2006Is Home Bias in Assets Related to Home Bias in Goods?2006Is Home Bias in Assets Related to Home Bias in Goods?2013Repatriation of Debt in the Euro Crisis: Evidence for the Secondary Market Theory 2005Wealth Transfers, Contagion, and Portfolio Constraints

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.