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NBER Working Papers and Publications
|August 2006||Understanding International Portfolio Diversification and Turnover Rates |
with Paul Bergin: w12473
This paper argues that fixed trading costs in international asset markets help explain equity home bias. This contrasts with explanations prevalent in international macroeconomics, which tend to be based on trading frictions instead in international goods markets, such as nontraded goods or transportation costs. While the stylized fact of high trading turnover in foreign holdings has been interpreted as evidence against international asset trading costs, we show that this argument only applies to costs that are proportional to trade, and not to fixed costs of entering the foreign market. After documenting that the home bias and turnover stylized facts remain valid in recent data, the paper constructs a very simple portfolio allocation model with various configurations of trading costs and ...
Published: Amadi, Amir A. & Bergin, Paul R., 2008.
"Understanding international portfolio diversification and turnover rates,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 18(2), pages 191-206, April.
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