A dynamic equilibrium model of imperfectly integrated financial markets

• 成果类型: Article
• 署名作者: Bhamra, Harjoat S.; Coeurdacier, Nicolas; Guibaud, Stephane
• 署名单位: Imperial College London; Center for Economic & Policy Research (CEPR)
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2014.09.011
• 发表日期: 2014
• 页码: 490-542
• 关键词: Two trees; Asset pricing with heterogeneous investors; Home bias in portfolios; International stock return correlations; Financial integration

摘要

This paper analyzes the determination of global equity portfolios and stock returns in the context of imperfectly integrated stock markets. We consider a continuous-time, two-country endowment economy, where the level of financial integration is captured by a proportional tax on foreign dividends. Despite the investor heterogeneity induced by this tax, we obtain approximate closed-form expressions for asset prices, and characterize equity holdings and the joint process followed by country-level stock returns in equilibrium. Our model is consistent with a broad range of empirical findings on international financial integration. When the (endogenous) cross-country return correlation is high, small frictions in equity markets can generate a substantial home bias in portfolios. In the baseline version of our model, the cross-country return correlation is driven by the fundamental correlation and portfolio rebalancing. In a two-good extension of the model, the adjustment of relative good prices can generate a high stock return correlation even for a low level of fundamental correlation, magnifying the impact of the financial friction on portfolios. We assess the quantitative performance of the model in a calibration exercise using data from G7 countries. (c) 2014 Elsevier Inc. All rights reserved.