NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Asset Liquidity and International Portfolio Choice

Athanasios Geromichalos, Ina Simonovska

NBER Working Paper No. 17331
Issued in August 2011
NBER Program(s):   IFM

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

An online appendix is available for this publication.

This paper was revised on November 13, 2013

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17331

Published: Geromichalos, A., and I. Simonovska (2014): “Asset Liquidity and International Portfolio Choice,” Journal of Economic Theory, 151(1), 342-380.

Users who downloaded this paper also downloaded these:
Barro and Ursua w17328 Rare Macroeconomic Disasters
Bianchi and Mendoza w16091 Overborrowing, Financial Crises and 'Macro-prudential' Taxes
Ramey w17787 Government Spending and Private Activity
Monacelli and Perotti w14584 Fiscal Policy, Wealth Effects, and Markups
Devereux and Yetman w16226 Leverage Constraints and the International Transmission of Shocks
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us