Asset class diversification and delegation of responsibilities between central banks and sovereign wealth funds

Joshua Aizenman and Reuven Glick

No 2010-20, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper presents a model comparing the optimal degree of asset class diversification abroad by a central bank and a sovereign wealth fund. We show that if the central bank manages its foreign asset holdings in order to meet balance of payments needs, particularly in reducing the probability of sudden stops in foreign capital inflows, it will place a high weight on holding safer foreign assets. In contrast, if the sovereign wealth fund, acting on behalf of the Treasury, maximizes the expected utility of a representative domestic agent, it will opt for relatively greater holding of more risky foreign assets. We also show how the diversification differences between the strategies of the bank and SWF is affected by the government?s delegation of responsibilities and by various parameters of the economy, such as the volatility of equity returns and the total amount of public foreign assets available for management.

Keywords: Banks and banking, Central; Sovereign wealth fund (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.frbsf.org/publications/economics/papers/2010/wp10-20bk.pdf (application/pdf)

Related works:
Working Paper: Asset Class Diversification and Delegation of Responsibilities between Central Banks and Sovereign Wealth Funds (2010)
Working Paper: Asset Class Diversification and Delegation of Responsibilities between Central Banks and Sovereign Wealth Funds (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2010-20

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().