Dr. Heiner Mikosch - Seminar Presentation

Date and Time: March 21st 2016, 10:00 - 11:30 am

Room: A101 in the Economics Building (Museum)

Abstract

Does financial development stimulate international portfolio diversification? Previous studies have demonstrated that, in addition to financial liberalization, financial development helps domestic investors increase their access to foreign markets and diversify investments abroad.

However, financial development can promote investment within a domestic market by substituting for foreign investment. Our portfolio choice model with a multi-country general equilibrium (GE) framework analyzes the mixed effects of financial development on international equity positions. By introducing domestic volatility cost as a proxy for financial development, the model closely generates the real pattern of equity home bias in developed and developing countries and identifies the GE effects of changes in financial development across countries; that is, simultaneaous financial development reduces home equity holdings in financially developed countries, not developing ones, which contributes to divergence in equity home bias between the two groups of countries. Further, our empirical analysis confirms that financial development has asymmetric effects on international portfolio diversification and developing countries, as the theory expected.

About the speaker

Ju-Hyun Pyun is an Assistand Professor of International Business at the Korea University Business School. He received his PhD in economics from the University of California, Davis in 2012. His main research areas are international macro-finance, international trade, fiscal policy and the Korean economy.