Do trade costs in goods market lead to home bias in equities?

Nicolas Coeurdacier

Post-Print from HAL

Abstract: Two of the main puzzles in international economics are the consumption and the portfolio home biases. We solve for international equity portfolios in a two-country/two-good stochastic equilibrium model with trade costs in goods markets. We show that introducing trade costs, as suggested by Obstfeld and Rogoff [Obstfeld, M., Rogoff, K., 2000a. The Six Major Puzzles in International Macroeconomics: Is There a Common Cause? NBER Macroeconomics Annual, 15], is not sufficient to explain these two puzzles simultaneously. On the contrary, we find that trade costs create a foreign bias in portfolios for reasonable parameter values. This result is robust to the addition of non-tradable goods for standard calibrations of the preferences.

Keywords: Trade costs; Home bias; Portfolio choice; International macroeconomics (search for similar items in EconPapers)
Date: 2009-02
References: Add references at CitEc
Citations: View citations in EconPapers (156)

Published in Journal of International Economics, 2009, 77 (1), pp.86 - 100

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Do trade costs in goods market lead to home bias in equities? (2009)
Working Paper: Do Trade Costs in Goods Market Lead to Home Bias in Equities? (2008)
Working Paper: Do Trade Costs in Goods Market Lead to Home Bias in Equities? (2006)
Working Paper: Do trade costs in goods market lead to home bias in equities? (2006)
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:hal:journl:hal-03602479

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().