Essays on International Portfolio Allocation and Risk Sharing PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Essays on International Portfolio Allocation and Risk Sharing PDF full book. Access full book title Essays on International Portfolio Allocation and Risk Sharing by Hande Kucuk Tuger. Download full books in PDF and EPUB format.
Author: Hande Kucuk Tuger
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This thesis contributes to the theoretical literature that analyses the link between international asset trade and international risk sharing. Despite the massive increase in cross-border asset trade since the 1990's, consumption risk sharing across countries remains limited. In standard international business cycle models, efficient risk sharing requires that consumption should be higher in the country where it is cheaper to consume, implying a high positive correlation between relative consumption and real exchange rate, which is strongly rejected in the data. Recent contributions show that it is possible to account for this so-called 'consumption-real exchange rate anomaly' in models with goods and financial market frictions where international asset trade is restricted to a single non-contingent bond. Chapter 1 analyses whether this class of models can account for the anomaly under a richer asset market structure where agents can trade in domestic and foreign currency bonds. Even such a small departure from the single bond economy implies too much risk sharing compared to the data although the number of assets that can be traded is less than the number of shocks affecting each economy. Introducing demand shocks alongside sector-specific productivity shocks can improve the performance of the model only under specific parameter and monetary policy settings. Chapter 2 extends this analysis to study the implications of international trade in equities, portfolio transaction costs and recursive utility. Chapter 3 studies the interaction between monetary policy and foreign currency positions in more detail. Different monetary policy regimes can lead to different foreign currency positions by changing the cyclical properties of the nominal ex- change rate. These external positions, in turn, affect the cross-border transmission of monetary policy shocks via a valuation channel. The way export prices are set has important implications for optimal foreign currency positions and the valuation channel when prices are sticky and financial markets are incomplete. Chapter 4 compares the international transmission of uncertainty shocks under alternative asset markets with an emphasis on the behaviour of net foreign assets, exchange rate and currency risk premium and shows that a model with restricted asset trade performs better than a model with complete financial integration in matching certain aspects of the data regarding the dynamics of these variables in response to increased macroeconomic uncertainty.
Author: Hande Kucuk Tuger
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This thesis contributes to the theoretical literature that analyses the link between international asset trade and international risk sharing. Despite the massive increase in cross-border asset trade since the 1990's, consumption risk sharing across countries remains limited. In standard international business cycle models, efficient risk sharing requires that consumption should be higher in the country where it is cheaper to consume, implying a high positive correlation between relative consumption and real exchange rate, which is strongly rejected in the data. Recent contributions show that it is possible to account for this so-called 'consumption-real exchange rate anomaly' in models with goods and financial market frictions where international asset trade is restricted to a single non-contingent bond. Chapter 1 analyses whether this class of models can account for the anomaly under a richer asset market structure where agents can trade in domestic and foreign currency bonds. Even such a small departure from the single bond economy implies too much risk sharing compared to the data although the number of assets that can be traded is less than the number of shocks affecting each economy. Introducing demand shocks alongside sector-specific productivity shocks can improve the performance of the model only under specific parameter and monetary policy settings. Chapter 2 extends this analysis to study the implications of international trade in equities, portfolio transaction costs and recursive utility. Chapter 3 studies the interaction between monetary policy and foreign currency positions in more detail. Different monetary policy regimes can lead to different foreign currency positions by changing the cyclical properties of the nominal ex- change rate. These external positions, in turn, affect the cross-border transmission of monetary policy shocks via a valuation channel. The way export prices are set has important implications for optimal foreign currency positions and the valuation channel when prices are sticky and financial markets are incomplete. Chapter 4 compares the international transmission of uncertainty shocks under alternative asset markets with an emphasis on the behaviour of net foreign assets, exchange rate and currency risk premium and shows that a model with restricted asset trade performs better than a model with complete financial integration in matching certain aspects of the data regarding the dynamics of these variables in response to increased macroeconomic uncertainty.
Author: Kyungkeun Kim
Publisher:
ISBN:
Category : Asset allocation
Languages : en
Pages : 106
Get Book Here
Book Description
My dissertation studies financial asset allocation and pricing in open economy framework. In the first chapter, I investigate why countries with more flexible exchange rate policies tend to hold more domestic bonds in their portfolios. First, I show that fewer domestic bond holdings under a pegged regime than under a floating regime is mainly because international bond position cannot hedge against real shocks when the exchange rate is pegged. Therefore, exchange rate regimes are non-neutral for asset holdings through changing the hedging characteristics of nominal assets. Second, I show that, under a floating regime, more domestic bond holdings by countries with more volatile nominal exchange rates can be explained by more volatile real shocks. I develop a two country DSGE model with endogeneous portfolio choice in which nominal bonds are traded internationally and exchange rate regimes are characterized by interest rate rules. In the second chapter, I investigate how international equity mutual funds allocate their portfolios across countries and what factors determine their asset allocation decisions using micro-level data on mutual funds. I find that equity fund managers are actively engaged in a rebalancing strategy to manage their global portfolios and the motive behind this action is more related to equity market risk rather than to currency risk. I also show that the fund managers' degree of rebalancing is larger in times of higher global uncertainty and in equity markets that exhibit a stronger correlation with the global market, implying that global risk has asymmetric effect on international asset allocation. In the third chapter, I expand a closed economy macro-finance model with a recursive preference into an open economy model, to better understand the determinants and co-movement of term premia across countries. I find that term premia are lower in an open economy setup than in a closed economy setup due to increased risk sharing across countries. In addition, I show that both underlying shocks and stochastic volatility shocks have to be highly correlated across countries to explain the cross-country co-movement of term premia, whereas the co movement of yield spreads is more driven by correlated policy expectations rather than by correlated term premia. I build a two-country DSGE model with the Epstein-Zin preference and stochastic volatility shocks. The third chapter, as well as the second chapter, emphasizes the role of global common risk in an open economy.
Author: Hansoo Kim
Publisher:
ISBN:
Category :
Languages : en
Pages : 130
Get Book Here
Book Description
Author: Yi-Tsung Wu
Publisher:
ISBN:
Category : Capital investment
Languages : en
Pages : 175
Get Book Here
Book Description
With the perception of sharp increases on cross asset holdings from the 1990s, we first start to wonder whether this phenomenon on foreign asset and liability holdings could improve the US income smoothing through net factor income from abroad although previous studies found little support on international income smoothing. In this study, we find that risk sharing in the US is far from perfect for about 70 percent of output shocks are not smoothed during 1977--2003. The remaining smoothed part mainly comes from consumption smoothing via national savings. Income smoothing only contributes 2--5%.
Author: Gianluca Benigno
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
Get Book Here
Book Description
Author: Amir Andrew Amadi
Publisher:
ISBN:
Category :
Languages : en
Pages : 226
Get Book Here
Book Description
Author: Yi-Chin Hsin
Publisher:
ISBN:
Category :
Languages : en
Pages : 87
Get Book Here
Book Description
Globalization increases the access to financial markets and provides expanding opportunities for investors to diversify internationally. As suggested by the Modern Portfolio Theory (Markowiz, 1952), rational investors should use one of the following two strategies to achieve portfolio diversification: (1) Investing in asset classes thought to have low correlations or (2) increasing the sizes of their portfolios in multiple markets. In the early 1970s, diversification was referred to as the “free lunch” in investment. However, French and Poterba (1991) show that investors still tend to hold a disproportionate part of domestic equities in their portfolios. This phenomenon is called “the equity home bias,” which is still puzzling in the international finance literature. These essays investigate what drives individuals to hold inefficient portfolios and forgo the benefits of international diversification. The first chapter of this study explains the equity home bias among international portfolios by analyzing the relationship between the sizes of portfolio required and the investor’s perception about risk. A flexible three-parameter distribution developed by Hueng and Yau (2006) to model the measures of risk for stock returns is extended here. Conclusions reveal that there is a trade-off between the desirable reduction of variance and the undesirable increase of negative skewness of diversifying international portfolios. This trade-off relationship may give an explanation to the equity home bias phenomenon in reality. The second chapter further examines the same question from the correlation perspective. Through numerical analysis, this chapter presents the evolution of U.S. equity home bias in the context of dynamic correlations between developed and emerging markets. The results imply that the persistent high correlations between the developed European and North American markets induced a high U.S. home bias; while on the other hand, the developed Pacific Asian and emerging markets have been relatively less correlated with that of the North American market and has led to a lower U.S. home bias. As future correlations are steadily increasing, investors may seek newly open markets for diversification benefits in the present. Yet over the long run, the benefits of international diversification can be very few. The home bias in the future will be rationalized by the equilibrium correlations between international markets. The third chapter uses micro data to analyze the portfolio choices in risky assets over the working-age of the single individual and the retired segments that are exposed to health and medical expense risk. Single retirees respond to changes in medical expenses by altering their portfolio toward risky assets, while no evidence is found in the changes of single working people’s portfolios. This result is in contrast to theoretical prediction, which assumes that the elders tend to hold riskless assets.
Author: Frank Openpong Kwabi
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Both developed and emerging markets have liberalised their stock markets by removing investment restrictions on equity capital inflows and outflows. The aim is to attract foreign investors and also to allow domestic investors to diversify internationally. However, existing literature shows that local investors overweight the domestic market (home bias), whilst foreign investors under or overweight foreign markets (foreign bias). Current studies have mainly investigated factors that determine home and foreign bias. The study uses comprehensive macro and micro level data to examine the implications of home and foreign bias on three research questions. The first empirical study investigates the impact of home and foreign bias on cost of capital. We mainly use five measures to proxy for cost of capital. We find compelling evidence supporting the hypothesis, those countries that exhibit higher home bias, experience higher cost of capital. Similarly, consistent with theory, we find that countries that have higher foreign bias enjoy lower cost of capital. In the second empirical study, we examine the impact of home and foreign bias on stock market development. Economic reasoning suggests, that countries that have home bias should have lower level of stock market development, while the countries where foreign equity portfolio investors invest more, should be associated with higher development. Our findings, based on rigorous analysis, confirm that prevalence of higher degree of home bias impedes stock market development. Likewise, higher foreign bias in equity portfolio allocations has significant positive implications for the development level of domestic stock market. Finally, in our third empirical research, we examine whether varying degrees of home and foreign bias have any impact on country level investor protection standards. We report two findings. First, we find strong evidence that supports the hypothesis that home bias leads to weak investor protection. Second, consistent with theory, countries that experience higher foreign bias, tend to have better investor protection. The findings suggest that provision of encouraging optimal international portfolio allocations to increase risk sharing, could be a crucial policy measure for governments. Policy makers in emerging countries can improve macroeconomic fundamentals and good governance to attract and retain foreign investors.
Author: Jun Sato
Publisher:
ISBN:
Category : Asset allocation
Languages : en
Pages : 108
Get Book Here
Book Description
Author: Marcel Fratzscher
Publisher:
ISBN:
Category : Arbeitspapier / Working paper - 24
Languages : en
Pages : 37
Get Book Here
Book Description
