Skip to Main content Skip to Navigation
New interface
Preprints, Working Papers, ...

When Bonds Matter: Home Bias in Goods and Assets

Abstract : This paper presents a model of international portfolios with real exchange rate and non financial risks that accounts for observed levels of equity home bias. A key feature is that investors can trade domestic and foreign bonds in addition to equities. Bonds matter: in equilibrium, investors structure their bond portfolio to hedge real exchange rate risks and equity home bias arises when non-financial income risk is negatively correlated with equity returns, after controlling for bond returns. Our framework allows us to derive equilibrium bond and equity portfolios in terms of sufficient statistics - directly measurable hedge ratios. We estimate equity and bond portfolios implied by the model for G-7 countries an find strong empirical support for the theory. We are able to account for a significant share of the equity home bias and obtain a currency exposure of bond portfolios comparable to the data.
Document type :
Preprints, Working Papers, ...
Complete list of metadata

https://hal-sciencespo.archives-ouvertes.fr/hal-03470191
Contributor : Spire Sciences Po Institutional Repository Connect in order to contact the contributor
Submitted on : Wednesday, December 8, 2021 - 10:15:51 AM
Last modification on : Tuesday, November 29, 2022 - 12:12:15 PM

File

when-bonds-matter-march-2015.p...
Files produced by the author(s)

Identifiers

Collections

Citation

Nicolas Coeurdacier, Pierre-Olivier Gourinchas. When Bonds Matter: Home Bias in Goods and Assets. 2015. ⟨hal-03470191⟩

Share

Metrics

Record views

2

Files downloads

2