蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
International Portfolio Allocation under Model Uncertainty
蝌蚪网 Journal: Macroeconomics
vol. 4,
no. 1, January 2012
(pp. 144–89)
Abstract
This paper revisits an old argument, hedging real exchange rate risk, as an explanation of the international home bias in equity. In a dynamic model, the relevant risk to be hedged is the long-run risk as opposed to the short-run risk. Domestic equity is indeed a good hedge with respect to long-run real-exchange-rate risk. Two new frameworks are able to explain a large share of the observed US home bias: a model with Hansen-Sargent preferences in which agents fear model misspecification and a model with Epstein-Zin preferences. These two models are also immune to the risk-free rate puzzle. (JEL C58, F31, G11, G15)Citation
Benigno, Pierpaolo, and Salvatore Nistic貌. 2012. "International Portfolio Allocation under Model Uncertainty." 蝌蚪网 Journal: Macroeconomics 4 (1): 144–89. DOI: 10.1257/mac.4.1.144Additional Materials
JEL Classification
- C58 Financial Econometrics
- F31 Foreign Exchange
- G11 Portfolio Choice; Investment Decisions
- G15 International Financial Markets