EconPapers    
Economics at your fingertips  
 

Asset Liquidity and International Portfolio Choice

Ina Simonovska () and Athanasios Geromichalos ()

No 756, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: We study optimal asset portfolio choice in a two-country search-theoretic model of monetary exchange. We allow assets to not only represent claims on future consumption, but to also serve as means of payment. Assuming foreign assets trade at a cost, we characterize equilibria in which different countries’ assets arise as media of exchange in different types of trades. More frequent trading opportunities at home result in agents holding proportionately more domestic over foreign assets. Consequently, agents have larger claims to domestic over foreign consumption goods. Moreover, foreign assets turn over faster than home assets because the former have desirable liquidity properties, but unfavorable returns over time. Our mechanism offers an answer to a long-standing puzzle in international finance: a positive relationship between consumption and asset home bias, coupled with higher turnover rates of foreign over domestic assets.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

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

Related works:
Journal Article: Asset liquidity and international portfolio choice (2014) Downloads
Working Paper: Asset Liquidity and International Portfolio Choice (2011) Downloads
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:sed011:756

Access Statistics for this paper

More papers in 2011 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 ().

 
Page updated 2020-07-07
Handle: RePEc:red:sed011:756