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The International Diversification Puzzle is Not as Bad as You Think
| Content Provider | Semantic Scholar |
|---|---|
| Author | Heathcote, Jonathan Perri, Fabrizio |
| Copyright Year | 2004 |
| Abstract | The international diversification puzzle is the fact that country portfolios are on average biased toward domestic assets, while one-good international macro models with nondiversifiable labor income risk predict the opposite pattern of diversification. This paper embeds a portfolio choice decision in a two-good international business cycle model and provides a closed-form solution for equilibrium country portfolios. Equilibrium portfolios are biased toward domestic assets because endogenous international relative price fluctuations make domestic assets a good hedge against labor income risk. Evidence from developed economies in recent years is qualitatively and quantitatively consistent with the mechanisms highlighted by the theory. |
| Starting Page | 1108 |
| Ending Page | 1159 |
| Page Count | 52 |
| File Format | PDF HTM / HTML |
| DOI | 10.1086/674143 |
| Volume Number | 121 |
| Alternate Webpage(s) | http://www.jonathanheathcote.com/homebias.pdf |
| Alternate Webpage(s) | http://fperri.com/gal041496149/PAPERS/hp_international_diversif_latest.pdf |
| Alternate Webpage(s) | http://www.econ.umn.edu/merr/2007_3.pdf |
| Alternate Webpage(s) | http://minneapolisfed.org/research/sr/sr398.pdf |
| Alternate Webpage(s) | http://www.sfu.ca/~kkasa/heath&perri_08.pdf |
| Alternate Webpage(s) | http://eml.berkeley.edu/~webfac/gourinchas/e281_f07/draft_sep10.pdf |
| Alternate Webpage(s) | http://www.fperri.net/PAPERS/homebias_june28.pdf |
| Alternate Webpage(s) | https://www.minneapolisfed.org/research/sr/sr398.pdf |
| Alternate Webpage(s) | http://www.mpls.frb.org/research/sr/SR398.pdf |
| Alternate Webpage(s) | https://economics.yale.edu/sites/default/files/files/Workshops-Seminars/Macroeconomics/perri-080422.pdf |
| Alternate Webpage(s) | http://research.mpls.frb.fed.us/research/sr/SR398.pdf |
| Alternate Webpage(s) | http://www.colorado.edu/Economics/seminars/SeminarArchive/2008-09/perri.pdf |
| Alternate Webpage(s) | http://www.minneapolisfed.org/research/sr/sr398.pdf |
| Alternate Webpage(s) | https://doi.org/10.1086/674143 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
