Goods Trade and International Equity Portfolios

47 Pages Posted: 29 Nov 2007 Last revised: 13 Mar 2022

See all articles by Fabrice Collard

Fabrice Collard

Universite de Toulouse I - CNRS (GREMAQ and IDEI)

Harris Dellas

University of Bern - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Behzad Diba

Georgetown University

Alan C. Stockman

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2007

Abstract

We show that international trade in goods is the main determinant of international equity portfolios and offers a compelling -- theoretically and empirically -- resolution of the portfolio home bias puzzle. The model implies that investors can achieve full international risk diversification if the share of wealth invested in foreign equity matches their country's degree of openness (the imports to GDP share). The empirical evidence strongly supports this implication.

Suggested Citation

Collard, Fabrice and Dellas, Harris and Diba, Bezhad and Stockman, Alan C., Goods Trade and International Equity Portfolios (November 2007). NBER Working Paper No. w13612, Available at SSRN: https://ssrn.com/abstract=1033742

Fabrice Collard

Universite de Toulouse I - CNRS (GREMAQ and IDEI) ( email )

Place Anatole France
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Harris Dellas (Contact Author)

University of Bern - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Bezhad Diba

Georgetown University ( email )

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United States
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Alan C. Stockman

University of Rochester - Department of Economics ( email )

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Rochester, NY 14627
United States
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National Bureau of Economic Research (NBER)

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United States

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