Goods Trade and International Equity Portfolios

Fabrice Collard, Harris Dellas (), Behzad Diba and Alan Stockman

No 2009-14, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: We show that international trade in goods is the main determinant of international equity portfolios and it also offers a compelling - theoretically and empirically - resolution of the portfolio home bias puzzle. The model implies that investors can achieve full international risk diversification if the share of wealth invested in foreign equity matches their country's degree of openness (the imports to GDP share). The empirical evidence strongly supports this implication.

Keywords: Portfolio home bias; imports; non-traded goods (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2009
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Citations: View citations in EconPapers (12)

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Working Paper: Goods Trade and International Equity Portfolios (2007)
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