This paper presents a model of international portfolios with real exchange rate and non financial risks that accounts for observed levels of equity home bias. A key feature is that investors can trade equities as well as domestic and foreign real bonds. Bonds matter: in equilibrium, investors...

This paper presents a model of international portfolios with real exchange rate and non financial risks that accounts for observed levels of equity home bias. A key feature is that investors can trade equities as well as domestic and foreign real bonds. Bonds matter: in equilibrium, investors...

Recent models of international equity portfolios exhibit two potential weaknesses. First, the structure of equilibrium equity portfolios is determined by the correlation of equity returns with real exchange rates and non financial income; yet empirically domestic equities don’t appear to be a...

Recent models on international equity portfolios exhibit two potential caveats: 1) Portfolios are indeterminate in the presence of bonds denominated in different currencies; 2) Equity portfolios are highly sensitive to preference parameters. We show that the addition of an additional, even...

Recent models of international equity portfolios exhibit two potential weaknesses: 1) the structure of equilibrium equity portfolios is determined by the correlation of equity returns with real exchange rates; yet empirically equities don't appear to be a good hedge against real exchange rate...

Recent models of international equity portfolios exhibit two potential weaknesses. First, the structure of equilibrium equity portfolios is determined by the correlation of equity returns with real exchange rates and non financial income; yet empirically domestic equities don’t appear to be a...