EconPapers    
Economics at your fingertips  
 

Country portfolios under global imbalances

Ning Zhang

European Economic Review, 2019, vol. 119, issue C, 302-317

Abstract: This paper studies the composition of country portfolios under global imbalances. When countries are identical, the optimal portfolio is fully diversified, which reflects the cross-country symmetric self-hedging (Lucas, 1982). Assuming a structural country asymmetry in patience, we construct a model of portfolio choices that features persistent non-zero net foreign assets (NFA). Because the latter opens a gap between GNP and GDP, we found that an asymmetric hedging of net portfolio returns emerges in addition to the otherwise only Lucas’ symmetric self-hedging in shaping the gross country portfolios, which implies a short (long) position of the local asset in the debtor (creditor) country. The resulting portfolio is home biased. We calibrate our model to the U.S. and China data over 1999–2017 and show that it matches the portfolio data for countries with unbalanced net external positions well.

Keywords: Financial globalisation; Global imbalances; International portfolio choices; Asset home bias; External adjustment (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S001429211930128X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:119:y:2019:i:c:p:302-317

DOI: 10.1016/j.euroecorev.2019.07.009

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-05-02
Handle: RePEc:eee:eecrev:v:119:y:2019:i:c:p:302-317