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Slow Moving Capital: Evidence from Global Equity Portfolios

Author

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  • Philippe Bacchetta

    (University of Lausanne)

Abstract
In this paper, we explore the implications of infrequent portfolio adjustment for international portfolios and asset prices in a two-country model. We focus on equity portfolios and estimate the model based on available data. For portfolio positions, we consider the U.S. versus the rest of the world and we use the estimates for U.S. assets and liabilities computed by Bertaut and Tryon (2007) and Bertaut and Judson (2014). We assume that infrequent portfolio investors face each period a constant probability p of adjusting their portfolio position. We then determine the endogenous response of asset prices and portfolios to three types of shocks. The estimated version of the model is able to match the dynamic behavior of portfolio position and excess returns when p is low.

Suggested Citation

  • Philippe Bacchetta, 2017. "Slow Moving Capital: Evidence from Global Equity Portfolios," 2017 Meeting Papers 1166, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1166
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    References listed on IDEAS

    as
    1. Stephanie E. Curcuru & Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2011. "US International Equity Investment and Past and Prospective Returns," American Economic Review, American Economic Association, vol. 101(7), pages 3440-3455, December.
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    7. Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity-Premium Puzzle," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 257-330, National Bureau of Economic Research, Inc.
    8. Dumas, Bernard & Buss, Adrian, 2015. "Trading Fees and Slow-Moving Capital," CEPR Discussion Papers 10737, C.E.P.R. Discussion Papers.
    9. Philippe Bacchetta & Eric van Wincoop, 2010. "Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle," American Economic Review, American Economic Association, vol. 100(3), pages 870-904, June.
    10. Lynch, Anthony W, 1996. "Decision Frequency and Synchronization across Agents: Implications for Aggregate Consumption and Equity Return," Journal of Finance, American Finance Association, vol. 51(4), pages 1479-1497, September.
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