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 paper offers new evidence on how currency risk is priced in the cross-section of international stock returns. Our experiment examines this long-standing question for a wide variety of test asset portfolios comprised of monthly returns for over 37,000 stocks from 46 countries over a...

This paper investigates time variation in the dynamics of international portfolio equity flows. We extend the empirical model of Hau and Rey (2004) by embedding a two-state Markov regime-switching model into the structural VAR. The model is estimated using monthly data, 1995-2015, on equity...

The purpose of this study is to assess the diversification benefits resulting from international asset allocation. In this study, we examine Capital Asset Pricing Model (CAPM) in its international context (ICAPM) using the monthly equity returns for 26 countries (18 developed and 8 emerging...

The benefits of country diversification are well-established. This article shows that the same benefits extend to equity factors, such as value, size, momentum, investment, and profitability. Specifically, country factor portfolios reflect both common variation, which we define as the global...

This paper explores international diversification benefits of Islamic bonds (sukuk) by examining dynamic spillovers and correlations between sukuk and conventional bond and stock markets. Asymmetric volatility spillover effects are observed from global debt and equity markets to Islamic bonds,...

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 introduce a portfolio friction in a two-country DSGE model where investors face a constant probability to make new portfolio decisions. The friction leads to a more gradual portfolio adjustment to shocks and a weaker portfolio response to changes in expected excess returns. We apply the model...

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...

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...