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Optimal investment strategies in an international economy with stochastic interest rates

  • Larsen, Linda Sandris
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    We investigate how investors should optimally choose to invest in a dynamically complete international market. We find closed-form solutions for the optimal investment strategy and for the wealth loss an investor suffers from not investing internationally. Theoretically, we show that the gain from international investment is due to the speculative investment only, and why it is important for an investor from a large economy to invest in a small economy. In a numerical example we compare the wealth losses investors from Denmark and the U.S. suffer due to home bias.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059-0560(09)00032-X
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 19 (2010)
    Issue (Month): 1 (January)
    Pages: 145-165

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    Handle: RePEc:eee:reveco:v:19:y:2010:i:1:p:145-165
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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