The home bias of the poor: Terms of trade effects and portfolios across the wealth distribution

Tobias Broer

No 8811, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper documents how the share of foreign stocks in US household portfolios rises with the ratio of financial wealth to non-financial income. This is both because wealthier households are more likely to participate in foreign asset markets, and because portfolio shares of participants increase with financial wealth but decrease with non-financial income. A simple, standard two-country general equilibrium model shows that hedging of terms of trade movements and non-financial income risk produces non-trivial heterogeneity in portfolios across the wealth and income distribution within countries that is qualitatively in line with this evidence.

Keywords: Heterogeneous agents; Home bias; Portfolio choice; Terms of trade (search for similar items in EconPapers)
JEL-codes: D11 D31 E21 F36 G11 (search for similar items in EconPapers)
Date: 2012-02
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The home bias of the poor: terms of trade effects and portfolios across the wealth distribution (2013)
Working Paper: The home bias of the poor: terms of trade effects and portfolios across the wealth distribution (2008)
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