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The international diversification puzzle is not worse than you think

Author

Listed:
  • Christian Julliard

    (Princeton University and University of Salerno)

Abstract
This paper offers two main contributions. First, it shows how the Baxter and Jermann (1997) claim that, once we consider human capital risk, the international diversification puzzle is worse than we think, is based on an econometric misspecification rejected by the data. Second, it outlines how, once the misspecification is corrected, the results are reverted: considering the human capital risk does not unequivocally worsen the puzzle and in some cases helps explaining it. JEL Classification: F30, G11, G12

Suggested Citation

  • Christian Julliard, 2003. "The international diversification puzzle is not worse than you think," International Finance 0301004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0301004
    Note: Type of Document - Acrobat PDF; prepared on IBM PC ; pages: 36; figures: included
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0301/0301004.pdf
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    References listed on IDEAS

    as
    1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
    2. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-297, April.
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    8. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
    9. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, vol. 40(2), pages 219-254, February.
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    13. Sims, Christopher A & Zha, Tao, 1998. "Bayesian Methods for Dynamic Multivariate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 949-968, November.
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    16. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-180, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International diversification; human capital;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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