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The home bias of the poor: Foreign asset portfolios across the wealth distribution

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  • Broer, Tobias

Abstract

This paper documents how the share of foreign stocks in US household portfolios rises with the ratio of financial wealth to non-financial income. This is both because wealthier households are more likely to participate in foreign asset markets, and because portfolio shares of participants increase with financial wealth but decrease with non-financial income. A simple, standard two-country general equilibrium model shows that hedging of terms of trade movements and non-financial income risk produces non-trivial heterogeneity in portfolios across the wealth and income distribution within countries that is qualitatively in line with this evidence.

Suggested Citation

  • Broer, Tobias, 2017. "The home bias of the poor: Foreign asset portfolios across the wealth distribution," European Economic Review, Elsevier, vol. 92(C), pages 74-91.
    • Handle: RePEc:eee:eecrev:v:92:y:2017:i:c:p:74-91
    DOI: 10.1016/j.euroecorev.2016.11.008
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    References listed on IDEAS

    as
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    Cited by:

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    3. Aquino, Juan Carlos, 2018. "The Valuation Channel of External Adjustment in Small Open Economies," Working Papers 2018-011, Banco Central de Reserva del Perú.

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    More about this item

    Keywords

    Portfolio choice; Home bias; Household finance; Inequality; International asset diversification;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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