The international diversification puzzle is worse than you think
Author: Marianne Baxter
Publisher:
Published: 1995
Total Pages: 16
ISBN-13:
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The International Diversification Puzzle is Worse Than You Think
Author: Marianne Baxter
Publisher:
Published: 1995
Total Pages: 36
ISBN-13:
DOWNLOAD EBOOKAlthough international financial markets are highly integrated across the more well-developed countries, investors nevertheless hold portfolios that consist nearly exclusively of domestic assets. This violation of the predictions of standard theories of portfolio choice is known as the 'international diversification puzzle.' In this paper, we show that the presence of nontraded risk associated with variations in the return to human capital has dramatic implications for the optimal fraction of domestic assets in an individual's portfolio. Our analysis suggests that the returns to human capital are highly correlated with the returns to domestic financial assets. Hedging the risk associated with nontraded human capital involves a short position in national equities in an amount approximately 1.5 times the value of the national stock market. Thus optimal and value- weighted portfolios very likely involve a short position in domestic marketable assets.
The International Diversification Puzzle is Not as Bad as You Think
Author: Jonathan Heathcote
Publisher:
Published: 2007
Total Pages: 60
ISBN-13:
DOWNLOAD EBOOKAbstract : In simple one-good international macro models, the presence of non-diversifiable labor income risk means that country portfoliosshould be heavily biased toward foreign assets. The fact that the opposite pattern of diversification is observed empirically constitutes the international diversification puzzle. We embed a portfolio choice decision in a frictionless two-country, two-good version of the stochastic growth model. In this environment, which is a workhorse for international business cycle research, we derive a closed-form expression for equilibrium country portfolios. These are biased towards domestic assets, as in the data. Home bias arises because endogenous international relative price fluctuations make domestic stocks a good hedge against non-diversifiable labor income risk. We then use our our theory to link openness to trade to the level of diversification, and find that it offers a quantitatively compelling account for the patterns of international diversification observed across developed economies in recent years.
The International Diversification Puzzle when Goods Prices Are Sticky
Author: Mr.Charles Engel
Publisher: International Monetary Fund
Published: 2009-01-01
Total Pages: 49
ISBN-13: 1451871597
DOWNLOAD EBOOKThis paper develops a two-country monetary DSGE model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some nominal goods prices are sticky. Trade in these assets achieves the same allocations as trade in a complete set of nominal state-contingent claims in our linearized model. When there is a high degree of price stickiness, we show that not much equity diversification is required to replicate the complete-markets equilibrium when agents are able to hedge foreign exchange risk sufficiently. Moreover, temporarily sticky nominal goods prices can have large effects on equity portfolios even when dividend processes are very persistent.
Handbook of the Economics of Finance
Author: G. Constantinides
Publisher: Elsevier
Published: 2003-11-04
Total Pages: 698
ISBN-13: 9780444513632
DOWNLOAD EBOOKArbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
The End of Politics
Author: Chris Dillow
Publisher: Harriman House Limited
Published: 2007
Total Pages: 297
ISBN-13: 1905641176
DOWNLOAD EBOOKNew Labour's distinctive idea is that equality andefficiency are partners, not enemies. This, the bookargues, is an example of managerialist ideology - thebelief that trade-offs between conflicting values can bemanaged away by clever policies, that management canreplace politics. This is not true. The book is a plea toremove ......
Why are Countries’ Asset Portfolios Exposed to Nominal Exchange Rates?
Author: Jonathan J. Adams
Publisher: International Monetary Fund
Published: 2017-12-22
Total Pages: 48
ISBN-13: 1484336496
DOWNLOAD EBOOKMost countries hold large gross asset positions, lending in domestic currency and borrowing in foreign. Thus, their balance sheets are exposed to nominal exchange rates. We argue that when asset markets are incomplete, nominal exchange rate exposure allows countries to partially insure against shocks that move real exchange rates. We demonstrate that asset market incompleteness can simultaneously generate realistic gross asset positions and resolve the Backus-Smith puzzle: that relative consumptions and real exchange rates correlate negatively. We also show that local perturbation methods that use stabilizing endogenous discount factors are inaccurate when average and steady state interest rates differ. To address this, we develop a novel global solution method to accurately solve the model.
The Valuation Channel of External Adjustment
Author: Mr.Fabio Ghironi
Publisher: International Monetary Fund
Published: 2009-12-01
Total Pages: 46
ISBN-13: 1451874200
DOWNLOAD EBOOKInternational financial integration has greatly increased the scope for changes in a country's net foreign asset position through the valuation channel, namely capital gains and losses on external assets and liabilities. We examine this valuation channel in a dynamic equilibrium portfolio model with international trade in equity. By separating asset prices and quantities, we can characterize the first-order dynamics of valuation effects and the current account in macroeconomic dynamics. Specifically, we disentangle the roles of excess returns, capital gains, and portfolio adjustment for consumption risk sharing when financial markets are incomplete.
Nber Macroeconomics Annual 2000
Author: Ben S. Bernanke
Publisher: MIT Press
Published: 2001
Total Pages: 430
ISBN-13: 9780262523141
DOWNLOAD EBOOKCracking the Emerging Markets Enigma
Author: G. Andrew Karolyi
Publisher: Oxford University Press
Published: 2015-05-01
Total Pages: 313
ISBN-13: 0199336636
DOWNLOAD EBOOKForward-thinking investors are constantly looking for the next BRIC-what foreign market is on the brink of expansive growth? Will these investments payoff, or are the potential risks too great? Investing in these emerging markets requires a careful analysis of potential risks and benefits which vary greatly from country to country and even from day to day. In Cracking the Emerging Markets Enigma, emerging markets expert Andrew Karolyi outlines a practical strategy for evaluating the opportunities and-more importantly-the risks of investing in emerging markets. Karolyi's proposed system evaluates multiple dimensions of the potential risks faced by prospective investors. These categories of risk reflect the uneven quality or fragility of the various institutions designed to assure integrity in capital markets-political stability, corporate opacity, limits placed on foreign investors, and more. By distilling these analyses into a numerical scoring system, Karolyi has devised a way to assess with ease emerging markets by different dimensions of risk and across all dimensions together. This novel assessment framework already has been tested in the market to great success. Researchers, students, firms, and both seasoned and novice investors are poised to gain a clear understanding of how to evaluate potential investments in emerging markets to maximize profits.
