International Portfolios with Supply, Demand and Redistributive Shocks

35 Pages Posted: 17 Mar 2008

See all articles by Nicolas Coeurdacier

Nicolas Coeurdacier

London Business School

Philippe Martin

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques

Robert Kollmann

ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2008

Abstract

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.

Keywords: international portfolios, home bias, supply shocks, demand shocks, redistributive shocks, valuation effects

JEL Classification: G11, G15

Suggested Citation

Coeurdacier, Nicolas and Martin, Philippe and Kollmann, Robert, International Portfolios with Supply, Demand and Redistributive Shocks (March 2008). Available at SSRN: https://ssrn.com/abstract=1106246 or http://dx.doi.org/10.2139/ssrn.1106246

Nicolas Coeurdacier

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Philippe Martin

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques ( email )

106/112 boulevard de l'Hopital
Paris Cedex 13, 75647
France

Robert Kollmann (Contact Author)

ECARES, Université Libre de Bruxelles ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

University of Paris XII - Department of Economics ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

HOME PAGE: http://www.robertkollmann.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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