NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Athanasios Geromichalos

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Working Papers

August 2011Asset Liquidity and International Portfolio Choice
with Ina Simonovska: w17331
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.

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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