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Goods Trade and International Equity Portfolios

Author

Listed:
  • Fabrice Collard

    (School of Economics, University of Adelaide)

  • Harris Dellas

    (Department of Economics, University of Bern)

  • Behzad Diba

    (Department of Economics, Georgetown University)

  • Alan Stockman

    (Department of Economics, University of Rochester)

Abstract

We show that international trade in goods is the main determinant of international equity portfolios and it also offers a compelling - theoretically and empirically - resolution of the portfolio home bias puzzle. The model implies that investors can achieve full international risk diversification if the share of wealth invested in foreign equity matches their country's degree of openness (the imports to GDP share). The empirical evidence strongly supports this implication.

Suggested Citation

  • Fabrice Collard & Harris Dellas & Behzad Diba & Alan Stockman, 2009. "Goods Trade and International Equity Portfolios," School of Economics and Public Policy Working Papers 2009-14, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2009-14
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2009-14.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Portfolio home bias; imports; non-traded goods;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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