Gradual Portfolio Adjustment: Implications for Global Equity Portfolios and Returns

Philippe Bacchetta and Eric Van Wincoop

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: Modern open economy macro models assume the continuous adjustment of international portfolio allocation. We introduce gradual portfolio adjustment into a global equity market model. Our approach di ffers from related literature in two key dimensions. First, the time interval between portfolio decisions is stochastic rather than fi xed, leading to a smoother response to shocks. Second, rather than only considering asset returns, we also use data on portfolio shares to confront the model to the data. Conditional on reasonable risk aversion, we fi nd that the data is consistent with infrequent portfolio decisions, with a frequency of at most once in 15 months on average.

Keywords: gradual portfolio adjustment; international portfolio allocation; predictable excess returns (search for similar items in EconPapers)
JEL-codes: F30 F41 G11 G12 (search for similar items in EconPapers)
Pages: 49 pp.
Date: 2017-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Gradual Portfolio Adjustment: Implications for Global Equity Portfolios and Returns (2017)
Working Paper: Gradual Portfolio Adjustment: Implications for Global Equity Portfolios and Returns (2017)
Working Paper: Gradual Portfolio Adjustment: Implications for Global Equity Portfolios and Returns (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:17.05

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