International Portfolios with Supply, Demand and Redistributive Shocks
Robert Kollmann () and
Philippe Martin ()
No 6482, CEPR Discussion Papers from C.E.P.R. Discussion Papers
This paper explains three key stylized facts observed in industrialized countries: 1) portfolio holdings are biased towards local equity; 2) international portfolios are long in foreign currency assets and short in domestic currency; 3) the depreciation of a country‘s exchange rate is associated with a net external capital gain, i.e. with a positive wealth transfer from the rest of the world. We present a two-country, two-good model with trade in stocks and bonds, and three types of disturbances: shocks to endowments, to the relative demand for home vs. foreign goods, and to the distribution of income between labour and capital. With these shocks, optimal international portfolios are shown to be consistent with the stylized facts.
Keywords: Equity home bias; International portfolios; International risk sharing; Valuation effects (search for similar items in EconPapers)
JEL-codes: F30 F41 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba
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Chapter: International Portfolios with Supply, Demand and Redistributive Shocks (2009)
Working Paper: International portfolios with supply, demand and redistributive shocks (2009)
Working Paper: International Portfolios with Supply, Demand, and Redistributive Shocks (2008)
Working Paper: International portfolios with supply, demand and redistributive shocks (2007)
Working Paper: International Portfolios with Supply, Demand and Redistributive Shocks (2007)
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