In the traditional model, intraindustry trade in an identical product is driven by the profit margin each firm perceives in the rival market on the basis of Cournot conjectures. The authors demonstrate that when markets are stochastic and potentially correlated, benefits from diversification...

Equity home bias is one of the most enduring puzzles in international finance. In this paper, I start out by documenting a novel stylized fact about home bias: countries with weaker domestic institutions hold fewer foreign assets. I then explore a macroeconomic mechanism by which the presence of...

In a two-country portfolio model with leverage constraints, I focus on private assets in order to understand how their behaviour can justify an expected excess return as well as the flight-to-safety observed in the data. The specific goal is to study how much these phenomena are explained by the...

This paper analyzes the dynamics of risk premia, real exchange rates and portfolio movements in a two-country, two-good, two-bond model. We use an asymmetric set-up in the model, where one of the countries is emerging and the other one is developed and both countries issue bonds in domestic...

This paper addresses the issue of international payments in a stock-flow framework, by capturing the interaction between the current account balance and international assets portfolios of domestic and foreign investors. It is argued that the stability of such interaction may be affected by...