Do Nontraded Goods Explain the Home Bias Puzzle? / Paolo Pesenti, Eric van Wincoop.

Format:

Book

Author/Creator:

Pesenti, Paolo.

Contributor:

National Bureau of Economic Research.

van Wincoop, Eric.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5784.

NBER working paper series no. w5784

Language:

English

Subjects (All):

Investments, Foreign.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Cambridge, Mass : National Bureau of Economic Research, 1996.

Summary:

Interpretations of the home bias puzzle in international finance have fre- quently focused on the role of fluctuations in domestic nontraded output, through their effects on the marginal utility of tradables consumption. This paper assesses the empirical evidence of this aproach, by deriving an explicit solution for the optimal international portfolio and applying the model to a set of fourteen OECD countries. Computing asset returns according to a `fundamentals' approach, it is possible to account for an average gap of no more than 10-15 percantage points between estimated domestic ownership shares and domestic shares under full diversification. When stock-market data are directly used, the predicted coefficient of home bias shrinks to 3%.

Notes:

Print version record

October 1996.