International Portfolios: A Comparison of Solution Methods

Katrin Rabitsch-Schilcher, Serhiy Stepanchuk, Viktor Tsyrennikov

Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftBegutachtung

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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.
Seiten (von - bis)404 - 422
FachzeitschriftJournal of International Economics
PublikationsstatusVeröffentlicht - 2015