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Nontraded Goods, Nontraded Factors, and International Non-Diversification / Marianne Baxter, Urban J. Jermann, Robert G. King.
- Format:
- Book
- Author/Creator:
- Baxter, Marianne.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w5175.
- NBER working paper series no. w5175
- Language:
- English
- Subjects (All):
- Consumption (Economics).
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1995.
- Cambridge, Mass. : National Bureau of Economic Research, 1995.
- Summary:
- Can the presence of nontraded consumption goods explain the high degree of 'home bias' displayed by investor portfolios? We find that the answer is no, so long as individuals have access to free international trade in financial assets. In particular, it is never optimal to exhibit home bias with respect to domestic traded-good equities. By contrast, an optimal portfolio may exhibit substantial home bias with respect to nontraded-good equities, although this result requires a very low degree of substitution between traded and nontraded goods in the utility function. Further, our analysis uncovers a second puzzle: the composition of investors' portfolios appears to be strongly at variance with the predictions of the model that incorporates nontraded goods.
- Notes:
- Print version record
- July 1995.
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