NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Nontraded Goods, Nontraded Factors, and International Non-Diversification

Marianne Baxter, Urban J. Jermann, Robert G. King

NBER Working Paper No. 5175
Issued in July 1995
NBER Program(s):   IFM

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.

download in pdf format
   (311 K)

email paper

This paper is available as PDF (311 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5175

Published: Journal of International Economics, Vol. 44, no. 2 (April 1998): 211-229.

Users who downloaded this paper also downloaded these:
Ferrie h0088 The Entry Into the U.S. Labor Market of Antebellum European Immigrants, 1840-60
Aguiar and Gopinath w10734 Emerging Market Business Cycles: The Cycle is the Trend
Tesar and Werner w4218 Home Bias and the High Turnover
 
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