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Capital Flow, Nontradable Consumption and Home Bias

Author

Listed:
  • Mao-wei Hung

    (College of Management, National Taiwan University)

  • Hsiao-yuan Yu

    (College of Management, National Taiwan University)

Abstract

This paper analyzes the relationship between net capital flow and home bias puzzle. The model suggests that both capital inflow and potential preference in home assets lead agents to allocate more in domestic and thus s home bias phenomenon. Besides, the more nontradable consumption, the fewer portfolios would be allocated in home assets. It is controversial with nontradable goods theorem.

Suggested Citation

  • Mao-wei Hung & Hsiao-yuan Yu, 2005. "Capital Flow, Nontradable Consumption and Home Bias," Economics Bulletin, AccessEcon, vol. 6(9), pages 1-15.
    • Handle: RePEc:ebl:ecbull:eb-05f30004
    as

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    References listed on IDEAS

    as
    1. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    2. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    3. Baxter, Marianne & Jermann, Urban J. & King, Robert G., 1998. "Nontraded goods, nontraded factors, and international non-diversification," Journal of International Economics, Elsevier, vol. 44(2), pages 211-229, April.
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    JEL classification:

    • F3 - International Economics - - International Finance

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