Which demands affect optimal international portfolio choices?

Jin-Ray Lu, Chih-Ming Chan and Mei-Hui Wen

Journal of International Financial Markets, Institutions and Money, 2012, vol. 22, issue 5, 1292-1306

Abstract: This study analyzes the asset allocations of simple international portfolios that include domestic risky assets, foreign risky assets, and domestic risk-free bonds, through a theoretical analysis. A close-form solution for the optimal holding rates is derived, and can be further sub-divided into three categories of demand: speculative demand, diversified demand, and hedging demands. We carefully explore the essential problem of identifying the underlying reasons for asset allocations, which in turn allows us to answer the question of which of these demands are critical in influencing holding changes.

Keywords: Exchange rate risk; Asset allocation; Stochastic model (search for similar items in EconPapers)
JEL-codes: F31 G11 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:22:y:2012:i:5:p:1292-1306

DOI: 10.1016/j.intfin.2012.07.005

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