International Capital Markets with Time-Varying Preferences
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Datum
2017-08-02
Autor
Curatola, Giuliano
Dergunov, Ilya
SAFE No.
176
Metadata
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Zusammenfassung
We propose a 2-country asset-pricing model where agents' preferences change endogenously as a function of the popularity of internationally traded goods. We determine the effect of the time-variation of preferences on equity markets, consumption and portfolio choices. When agents are more sensitive to the popularity of domestic consumption goods, the local stock market reacts more strongly to the preferences of local agents than to the preferences of foreign agents. Therefore, home bias arises because home-country stock represents a better investment opportunity for hedging against future fluctuations in preferences. We test our model and find that preference evolution is a plausible driver of key macroeconomic variables and stock returns.
Forschungsbereich
Financial Markets
Household Finance
Household Finance
Schlagworte
asset pricing, general equilibrium, heterogeneous agents, interdependent preferences, portfolio choice
JEL-Klassifizierung
D51, D52, D53, E20, E21, F21, G11, G12
Thema
Consumption
Saving and Borrowing
Macro Finance
Saving and Borrowing
Macro Finance
Beziehungen
1
Publikationstyp
Working Paper
Link zur Publikation
Collections
- LIF-SAFE Working Papers [334]