International Portfolios: A Comparison of Solution Methods

Rabitsch, Katrin and Stepanchuk, Serhiy and Tsyrennikov, Viktor (2014) International Portfolios: A Comparison of Solution Methods. Department of Economics Working Paper Series, 159. WU Vienna University of Economics and Business, Vienna.

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Abstract

We compare the performance of the perturbation-based (local) portfolio solution method of Devereux and Sutherland (2010a, 2011) with a global solution method. We find that the local method performs very well when the model is designed to capture stylized macroeconomic facts and countries/agents are symmetric, i.e. when the latter have similar size, face similar risks and trade assets with similar risk properties. It performs less satisfactory when the agents engaged in financial trade are asymmetric. The global solution method performs substantially better when the model is parameterized to match the observed equity premium, a key stylized finance fact. (authors' abstract)

Item Type: Paper
Keywords: Country Portfolios / Solution Methods
Classification Codes: JEL E44, F41, G11, G15
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 16 Jan 2014 08:49
Last Modified: 22 Oct 2019 00:41
URI: https://epub.wu.ac.at/id/eprint/4068

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