Home asset preference and productivity shocks

Rafael Eldor, David Pines, Abba Schwartz

Research output: Contribution to journalArticlepeer-review

Abstract

This paper presents (sufficient) conditions for the domestic investor/consumer to hold in equilibrium a disproportionate share of domestic assets. The analysis is carried out in a general equilibrium framework of products and assets markets, when the source of the uncertainty is productivity shocks in the nontraded goods industries. In the asset markets we allow trade in instruments with a payoff which is not necessarily positively correlated with the price of the consumption good, as the instruments considered in the existing literature. Consequently, in our analysis, in contrast to the existing literature, hedging against price uncertainty is neither necessary nor sufficient for home asset preference.

Original languageEnglish
Pages (from-to)165-176
Number of pages12
JournalJournal of International Economics
Volume25
Issue number1-2
DOIs
StatePublished - Aug 1988

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