International portfolios: a comparison of solution methods
International portfolios: a comparison of solution methods
We compare the performance of the perturbation-based (local) portfolio solution method of Devereux & Sutherland (2010a, 2011) with a global solution method. As a test suite we use model specifications that broadly capture features of international financial trade, between advanced economies, and between advanced and emerging economies. We consider both symmetric country setups and asymmetric setups, that capture important empirical facts such as differences in macroeconomic volatility, differences in portfolio composition, and high equity premia. We find that the local method performs well at business cycle frequencies, both in the symmetric and asymmetric settings, while significant differences arise at long horizons in asymmetric settings.
404-422
Rabitsch, Katrin
f63e7658-1a7d-436f-b3ea-cefe7419e936
Stepanchuk, Serhiy
ab625a3a-3db4-411f-90a4-1a2d2f9a0b17
Tsyrennikov, Viktor
30fcb7be-8811-4565-af6c-e19200a0c159
November 2015
Rabitsch, Katrin
f63e7658-1a7d-436f-b3ea-cefe7419e936
Stepanchuk, Serhiy
ab625a3a-3db4-411f-90a4-1a2d2f9a0b17
Tsyrennikov, Viktor
30fcb7be-8811-4565-af6c-e19200a0c159
Rabitsch, Katrin, Stepanchuk, Serhiy and Tsyrennikov, Viktor
(2015)
International portfolios: a comparison of solution methods.
Journal of International Economics, 97 (2), .
(doi:10.1016/j.jinteco.2015.08.001).
Abstract
We compare the performance of the perturbation-based (local) portfolio solution method of Devereux & Sutherland (2010a, 2011) with a global solution method. As a test suite we use model specifications that broadly capture features of international financial trade, between advanced economies, and between advanced and emerging economies. We consider both symmetric country setups and asymmetric setups, that capture important empirical facts such as differences in macroeconomic volatility, differences in portfolio composition, and high equity premia. We find that the local method performs well at business cycle frequencies, both in the symmetric and asymmetric settings, while significant differences arise at long horizons in asymmetric settings.
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manuscript-201501_FINAL.pdf
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Accepted/In Press date: 7 August 2015
e-pub ahead of print date: 17 August 2015
Published date: November 2015
Organisations:
Economics
Identifiers
Local EPrints ID: 402802
URI: http://eprints.soton.ac.uk/id/eprint/402802
ISSN: 0022-1996
PURE UUID: 8dd372d0-f3d3-4a31-b490-ad43a254271f
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Date deposited: 15 Nov 2016 15:24
Last modified: 15 Mar 2024 06:04
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Author:
Katrin Rabitsch
Author:
Viktor Tsyrennikov
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