Modern open economy macro models assume the continuous adjustment of international portfolio allocation. We introduce gradual portfolio adjustment into a global equity market model. Our approach differs from related literature in two key dimensions. First, the time interval between portfolio...

We evaluate how non-normality of asset returns and the temporal evolution of volatility and higher moments affects the conditional allocation of wealth. We show that if one neglects these aspects, as would be the case in a mean-variance allocation, a sighifiant cost would arise. The performance...