International portfolios with supply, demand and redistributive shocks
By: Nicolas Coeurdacier, Robert Kollmann, Philippe Martin.
Contributors: Kollmann, Robert Miguel W. K., 1963-; Martin, Philippe J.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13424.; Working paper series (National Bureau of Economic Research) -- working paper no. 13424.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 34
Subjects: Portfolio management -- Developed countries -- Mathematical models
Description: This paper explains three key stylized facts observed in industrialized countries: 1) portfolio holdings are biased towards local equity; 2) international portfolios are long in foreign currency assets and short in domestic currency; 3) the depreciation of a country's exchange rate is associated with a net external capital gain, i.e. with a positive wealth transfer from the rest of the world. We present a two-country, two-good model with trade in stocks and bonds, and three types of disturbances: shocks to endowments, to the relative demand for home vs. foreign goods, and to the distribution of income between labor and capital. With these shocks, optimal international portfolios are shown to be consistent with the stylized facts.
Notes: "September 2007"

Includes bibliographical references (p. 28-32).

Also available in PDF from the NBER World Wide Web site (www.nber.org).