Hedging against the governmenta solution to the home asset bias puzzle

Resumo

We explain why international nominal bonds and equity portfolios are biased domestically. In our model, holding domestic government nominal debt provides a hedge against shocks to bond returns and the impact on taxes they induce. For this result, only two features are essential: nominal risk and taxes only on domestic agents. A third feature explains domestically biased equity holdings: government spending falls on domestic goods. Then, an increase in government spending raises the returns on domestic equity, providing a hedge against the subsequent increase in taxes. A calibrated version of the model predicts asset holdings that quantitatively match the data.

Ficha do documento

Tipo

Artigo científico

Ano

2013

Instituição

Amer Economic Assoc

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1257/mac.5.1.102

Identificador

oai:repositorio.fgv.br:10438/23299

Temas

Economia

Palavras-chave

International diversification puzzleSpending shocksTradeRiskDeficitsPricesEconomiaHedging (Finanças)