Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/128068 
Year of Publication: 
2010
Series/Report no.: 
Working Paper No. 10.03
Publisher: 
Swiss National Bank, Study Center Gerzensee, Gerzensee
Abstract: 
We show that including distribution costs into a general equilibrium model of international portfolio choice contributes to explaining the "home bias" in international equity investment. Our model is able to replicate observed investment positions for a wide range of parameter values, even if agents have an incentive to hedge labor income risk by purchasing foreign equity. This is because the existence of a retail sector affects both the correlation of domestic returns with the domestic price level and the correlation between financial and nonfinancial income.
Subjects: 
International Financial Market Integration
International Risk Sharing
Home Bias
JEL: 
F41
G11
G15
Document Type: 
Working Paper

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