International portfolios: A comparison of solution methods

Katrin Rabitsch, Serhiy Stepanchuk and Viktor Tsyrennikov

Journal of International Economics, 2015, vol. 97, issue 2, 404-422

Abstract: We compare the performance of the perturbation-based (local) portfolio solution method of Devereux & Sutherland (2010a, 2011) with a global solution method. As a test suite we use model specifications that broadly capture features of international financial trade, between advanced economies, and between advanced and emerging economies. We consider both symmetric country setups and asymmetric setups, that capture important empirical facts such as differences in macroeconomic volatility, differences in portfolio composition, and high equity premia. We find that the local method performs well at business cycle frequencies, both in the symmetric and asymmetric settings, while significant differences arise at long horizons in asymmetric settings.

Keywords: Country portfolios; Solution methods; Portfolio allocation (search for similar items in EconPapers)
JEL-codes: E44 F41 G11 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (31)

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Working Paper: International Portfolios: A Comparison of Solution Methods (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:97:y:2015:i:2:p:404-422

DOI: 10.1016/j.jinteco.2015.08.001

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