When Bonds Matter: Home Bias in Goods and Assets

Pierre-Olivier Gourinchas and Nicolas Coeurdacier

No 342, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: Recent models on international equity portfolios exhibit two potential caveats: 1) Portfolios are indeterminate in the presence of bonds denominated in different currencies; 2) Equity portfolios are highly sensitive to preference parameters. We show that the addition of an additional, even small, source of risk alleviates this indeterminacy and makes equity portfolios much less sensitive to the preferences when bond returns can insure fluctuations in total consumption expenditures. We compute these 'robust portfolios' for the various set-ups explored in the literature. We document two cases where bond trading cannot hedge total consumption expenditures: in presence of nominal shocks, or preference/quality shocks. We discuss the empirical importance of these two cases.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2008/paper_342.pdf (application/pdf)

Related works:
Journal Article: When bonds matter: Home bias in goods and assets (2016)
Working Paper: When bonds matter: Home bias in goods and assets (2016)
Working Paper: When bonds matter: Home bias in goods and assets (2016)
Working Paper: When Bonds Matter: Home Bias in Goods and Assets (2015)
Working Paper: When Bonds Matter: Home Bias in Goods and Assets (2015)
Working Paper: When Bonds Matter: Home Bias in Goods and Assets (2011)
Working Paper: When Bonds Matter: Home Bias in Goods and Assets (2011)
Working Paper: When bonds matter: home bias in goods and assets (2009)
Working Paper: When bonds matter: home bias in goods and assets (2009)
Working Paper: When bonds matter: home bias in goods and assets (2008)
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:red:sed008:342

Access Statistics for this paper

More papers in 2008 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().