Slow Moving Capital: Evidence from Global Equity Portfolios

Philippe Bacchetta

No 1166, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we explore the implications of infrequent portfolio adjustment for international portfolios and asset prices in a two-country model. We focus on equity portfolios and estimate the model based on available data. For portfolio positions, we consider the U.S. versus the rest of the world and we use the estimates for U.S. assets and liabilities computed by Bertaut and Tryon (2007) and Bertaut and Judson (2014). We assume that infrequent portfolio investors face each period a constant probability p of adjusting their portfolio position. We then determine the endogenous response of asset prices and portfolios to three types of shocks. The estimated version of the model is able to match the dynamic behavior of portfolio position and excess returns when p is low.

Date: 2017
New Economics Papers: this item is included in nep-dge, nep-ifn and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1166

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