TY  - JOUR
AU  - Pesenti,Paolo
AU  - Wincoop,Eric van
TI  - Do Nontraded Goods Explain the Home Bias Puzzle?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5784
PY  - 1996
Y2  - October 1996
UR  - http://www.nber.org/papers/w5784
L1  - http://www.nber.org/papers/w5784.pdf
N1  - Author contact info:
Paolo A. Pesenti
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
Tel: 212/720-5493
Fax: 212/720-6831
E-Mail: paolo.pesenti@ny.frb.org

Eric van Wincoop
Department of Economics
University of Virginia
P.O. Box 400182
Charlottesville, VA  22904-4182
Tel: 434/924-3997
Fax: 434/982-2904
E-Mail: vanwincoop@virginia.edu
AB  - 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%.
ER  -