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Portfolio Theory and Foreign Investment ? The Role of Non‐Marketed Assets

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  • PETER HARTLEY

Abstract

Far from thinking the extent of foreign investment in Australia is large, economists ought perhaps be surprised that the extent is not greater. Certainly, portfolio diversification theory would seem to predict Australians would own a small share of their marketable wealth in Australian marketed assets. We show that when domestic residents in a small open economy possess non‐marketable wealth (so that securities markets are not complete), domestic marketed assets may be disproportionately demanded by residents to hedge their non‐marketed risks.

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  • Peter Hartley, 1986. "Portfolio Theory and Foreign Investment ? The Role of Non‐Marketed Assets," The Economic Record, The Economic Society of Australia, vol. 62(3), pages 286-295, September.
    • Handle: RePEc:bla:ecorec:v:62:y:1986:i:3:p:286-295
    DOI: 10.1111/j.1475-4932.1986.tb02688.x
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    1. Hanoch, Giora, 1977. "Risk Aversion and Consumer Preferences," Econometrica, Econometric Society, vol. 45(2), pages 413-426, March.
    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Brito, Ney O, 1977. "Marketability Restrictions and the Valuation of Capital Assets under Uncertainty," Journal of Finance, American Finance Association, vol. 32(4), pages 1109-1123, September.
    4. Lau, Lawrence J., 1969. "Duality and the structure of utility functions," Journal of Economic Theory, Elsevier, vol. 1(4), pages 374-396, December.
    5. Milne, Frank & Smith, Clifford W., 1980. "Capital Asset Pricing with Proportional Transaction Costs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(2), pages 253-266, June.
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    Cited by:

    1. Gordon Roger Hall & Gaspar Vitor, 2001. "Home Bias in Portfolios and Taxation of Asset Income," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 1(1), pages 1-30, September.
    2. Tesar, Linda L., 1995. "Evaluating the gains from international risksharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 95-143, June.
    3. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995, Elsevier.

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