A dynamic equilibrium model of imperfectly integrated financial markets

Nicolas Coeurdacier and Stéphane Guibaud ()
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Stéphane Guibaud: PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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Abstract: We build a continous-time general equilibrium model of a two-country, pure-exchange economy featuring taxes on the repatriation of dividends. We find approximate closed-form expressions for asset prices, returns joint dynamics and equity portfolios, thus giving a full description of equilibrium in-between the polar cases of perfect integration and full segmentation. We show that large home bias in portfolios can result from small frictions on international financial markets. The reason is that, partly due to portfolio rebalancing, the international correlation of returns is very high - making assets close substitutes and implying that slight frictions have a dramatic effect on portfolio composition.

Keywords: asset pricing; financial integration; home bias in portfolio; international stock returns correlations; asymmetric taxation; investors heterogeneity; stochastic pareto-negishi weight (search for similar items in EconPapers)
Date: 2005-08
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00590775v1
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: A dynamic equilibrium model of imperfectly integrated financial markets (2014)
Working Paper: A Dynamic Equilibrium Model of Imperfectly Integrated Financial Markets (2014)
Working Paper: A Dynamic Equilibrium Model of Imperfectly Integrated Financial Markets (2014)
Working Paper: A Dynamic Equilibrium Model of Imperfectly Integrated Financial Markets (2006)
Working Paper: A dynamic equilibrium model of imperfectly integrated financial markets (2005)
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