Do trade costs in goods market lead to home bias in equities?

Coeurdacier, Nicolas

doi:10.1016/j.jinteco.2008.10.005

Cited by 171 publications

(203 citation statements)

References 53 publications

(75 reference statements)

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“…While not negligible, the bias is substantially below existing estimates of home bias. 13 Home bias related to the real exchange rate hedge is even smaller when we allow for non-traded assets. 14 If for illustrative purposes we use the estimate of …nancial to total wealth of 0.22 from Bottazzi et.al.…”

Section: Covariance-variance Calculationsmentioning

confidence: 98%

“…Obstfeld and Rogo¤ (2000) …nd that introducing such trade costs can account for the observed portfolio home bias. But Coeurdacier (2008) …nds that this conclusion no longer holds when adopting a more realistic assumption about the elasticity of substitution between goods. In fact, Coeurdacier (2008) …nds that this leads to a foreign bias.…”

Section: Introductionmentioning

confidence: 99%

“…But Coeurdacier (2008) …nds that this conclusion no longer holds when adopting a more realistic assumption about the elasticity of substitution between goods. In fact, Coeurdacier (2008) …nds that this leads to a foreign bias. In response to this, Obstfeld (2007) argues that one can make the model even more realistic by introducing both non-traded goods and trade costs for traded goods.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Can trade costs in goods explain home bias in assets?

Wincoop

Warnock

2010

Journal of International Money and Finance

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Section: Covariance-variance Calculationsmentioning

confidence: 98%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Can trade costs in goods explain home bias in assets?

Wincoop

Warnock

2010

Journal of International Money and Finance

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“…In Table 7 we report the welfare changes (in percentages of lifetime consumption) of going from complete markets to restricted asset market structures. 22 In particular we report the value of η that solves the following equation where a CM superscript denotes complete markets allocations, while a M KT superscript denotes a given market allocation. In particular, we focus on the market structures where only a bond is traded and on financial autarky.…”

Section: Welfare and Policiesmentioning

confidence: 99%

Assessing International Efficiency

Heathcote¹,

Perri²

2014

Handbook of International Economics

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This paper is structured in three parts. The first part outlines the methodological steps, involving both theoretical and empirical work, for assessing whether an observed allocation of resources across countries is efficient. The second part applies the methodology to the long-run allocation of capital and consumption in a large cross section of countries. We find that countries that grow faster in the long run also tend to save more both domestically and internationally. These facts suggest that either the long-run allocation of resources across countries is inefficient, or that there is a systematic relation between fast growth and preference for delayed consumption. The third part applies the methodology to the allocation of resources across developed countries at the business cycle frequency. Here we discuss how evidence on international quantity comovement, exchange rates, asset prices, and international portfolio holdings can be used to assess efficiency. Overall, quantities and portfolios appear consistent with efficiency, while evidence from prices is difficult to interpret using standard models. The welfare costs associated with an inefficient allocation of resources over the business cycle can be significant if shocks to relative country permanent income are large. In those cases partial financial liberalization can lower welfare.

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“…For instance, Coeurdacier, Kollmann, and Martin (2009) show that a combination of trade in equities and bonds in a DSGE model with capital accumulation generates realistic home equity bias and (for low 9 See also Bottazzi, Pesenti, and van Wincoop (1996) and the survey in Lewis (1999). The recent literature includes, among others, Benigno and Küçük-Tuger (2008), Coeurdacier (2009), Coeurdacier andGourinchas (2008), Coeurdacier, Kollmann, and Martin (2008), Engel and Matsumoto (2009), Hnatkovska (2009, Heathcote and Perri (2007), Kollmann (2006), andMatsumoto (2007). With the exception of numerical results in Kollmann (2006) and Coeurdacier, Kollmann, and Martin (2009), none of these papers focuses on the role of valuation in international adjustment.…”

Section: Introductionmentioning

confidence: 99%

The valuation channel of external adjustment

Ghironi

Lee

Rebucci³

2015

Journal of International Money and Finance

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This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.International financial integration has greatly increased the scope for changes in a country's net foreign asset position through the valuation channel, namely capital gains and losses on external assets and liabilities. We examine this valuation channel in a dynamic equilibrium portfolio model with international trade in equity. By separating asset prices and quantities, we can characterize the first-order dynamics of valuation effects and the current account in macroeconomic dynamics. Specifically, we disentangle the roles of excess returns, capital gains, and portfolio adjustment for consumption risk sharing when financial markets are incomplete. JEL Classification Numbers: F32; F41; G11; G15

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Do trade costs in goods market lead to home bias in equities?

Cited by 171 publications

References 53 publications

Can trade costs in goods explain home bias in assets?

Can trade costs in goods explain home bias in assets?

Assessing International Efficiency

The valuation channel of external adjustment

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