We develop a theory to account for changes in gross and net capital flows over the global financial cycle (GFC). The theory relies critically on portfolio heterogeneity among investors within and across countries, related to risky portfolio shares and portfolio shares allocated to foreign...

We compute optimally diversified international asset portfolios for banks located in France, Germany, Italy, the U.K., and the U.S., using the mean-variance portfolio model with currency hedging. We compare these benchmark portfolios to the actual cross-border asset positions of banks from...

A substantial amount of foreign portfolio and bank-related capital has been flowing into a number of emerging market economies since 2009. A reversal of these flows as a consequence of financial deleveraging or waning risk appetite could place the financial sectors of many of those economies...

This paper presents a rational expectations model of asset prices with rationally inattentive investors that, unlike previous papers, explains both the substantial amount of equity wealth invested domestically and the puzzling time series behavior of the home bias - an initial plateau before...

This article aims to extend evaluation of the classic multifactor model of Carhart (1997) for the case of global equity indices and to expand analysis performed in Sakowski et. al. (2015). Our intention is to test several modifications of these models to take into account different dynamics of...

Recent academic research predicts that (i) equity mutual funds have a systematically better performance during periods of economic downturn and (ii) investors are willing to pay high fees for funds that provide recession insurance. In this paper, we test these hypotheses using international fund...

By estimating the correlation coefficients values we compare in this study the diversification potential of the different foreign equity markets and commodities. We present the findings that reflect the perspective of Polish investor. Our results are following: we identify a significant...

By allowing for imperfectly informed markets and the role of private information, we offer new insights about observed deviations of portfolio concentrations in domestic relative to foreign risky assets, or "home bias", from what standard finance models predict. Our model ascribes the "bias" to...

Sovereign Wealth Funds (SWFs) have become active investors on the financial markets. This working paper meets the increasing thirst for information on the investment activities of Sovereign Wealth Funds, their legal environment and the implications on German stock listed corporations. Thus, this...

We derive the optimal currency portfolio of an equity investor with no forecasting ability. This can be estimated based on observable parameters, including equity and currency covariances and the proportion of the investor's wealth held in risky assets. The currency position depends on the...