van Wincoop, Eric; Warnock, Francis E. - In: Journal of International Money and Finance 29 (2010) 6, pp. 1108-1123
A debate has raged in the general equilibrium literature on the impact of trade costs on portfolio home bias. In all of these models there is a simple, easily observed covariance-variance ratio. We compute this term using data on real exchange rates and asset returns. The resulting portfolio...