International portfolios with supply, demand and redistributive shocks

Nicolas Coeurdacier (1) , Robert Kollmann (2) , Philippe Martin (1)

1 ECON - Département d'économie (Sciences Po)
2 ECARES - European Center for Advanced Research in Economics and Statistics

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.

Mots clés: International risk sharing; International portfolios; Home equity bias; Valuation e¤ects

Domaines: Economies et finances

Nicolas Coeurdacier, Robert Kollmann, Philippe Martin. International portfolios with supply, demand and redistributive shocks. NBER International Seminar on Macroeconomics (ISOM) conference, Jun 2007, Istanbul, Turkey. pp.231-263. ⟨hal-01053624⟩