Asset Liquidity and International Portfolio Choice /
Geromichalos, Athanasios.
Asset Liquidity and International Portfolio Choice / Athanasios Geromichalos, Ina Simonovska. - Cambridge, Mass. National Bureau of Economic Research 2011. - 1 online resource: illustrations (black and white); - NBER working paper series no. w17331 . - Working Paper Series (National Bureau of Economic Research) no. w17331. .
August 2011.
We study optimal portfolio choice in a two-country model where assets represent claims on future consumption and facilitate trade in markets with imperfect credit. Assuming that foreign assets trade at a cost, agents hold relatively more domestic assets. Consequently, agents have larger claims to domestic over foreign consumption. Moreover, foreign assets turn over faster than domestic assets because the former have desirable liquidity properties, but represent inferior saving tools. Our mechanism offers an answer to a long-standing puzzle in international finance: a positive relationship between consumption and asset home bias coupled with higher turnover rates of foreign over domestic assets.
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Mode of access: World Wide Web.
Asset Liquidity and International Portfolio Choice / Athanasios Geromichalos, Ina Simonovska. - Cambridge, Mass. National Bureau of Economic Research 2011. - 1 online resource: illustrations (black and white); - NBER working paper series no. w17331 . - Working Paper Series (National Bureau of Economic Research) no. w17331. .
August 2011.
We study optimal portfolio choice in a two-country model where assets represent claims on future consumption and facilitate trade in markets with imperfect credit. Assuming that foreign assets trade at a cost, agents hold relatively more domestic assets. Consequently, agents have larger claims to domestic over foreign consumption. Moreover, foreign assets turn over faster than domestic assets because the former have desirable liquidity properties, but represent inferior saving tools. Our mechanism offers an answer to a long-standing puzzle in international finance: a positive relationship between consumption and asset home bias coupled with higher turnover rates of foreign over domestic assets.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.