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Human capital and international portfolio diversification: a reappraisal

Bretscher, Lorenzo, Julliard, Christian and Rosa, Carlo (2016) Human capital and international portfolio diversification: a reappraisal. Journal of International Economics, 99 (1). S78-S96. ISSN 0022-1996

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Identification Number: 10.1016/j.jinteco.2015.12.007


We study the implications of human capital hedging for international portfolio choice. First, we document that, at the household level, the degree of home country bias in equity holdings is increasing in the labor income to financial wealth ratio. Second, we show that a heterogeneous agent model in which households face short selling constraints and labor income risk, calibrated to match both micro and macro labor income and asset returns data, can both rationalize this finding and generate a large aggregate home country bias in portfolio holdings. Third, we find that the empirical evidence supporting the belief that the human capital hedging motive should skew domestic portfolios toward foreign assets, is driven by an econometric misspecification rejected by the data.

Item Type: Article
Official URL:
Additional Information: © 2016 Elsevier
Divisions: Finance
Financial Markets Group
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HG Finance
Date Deposited: 06 Jan 2016 10:48
Last Modified: 07 Jan 2024 17:48
Projects: ES/K002309/1, ES/K002309/1
Funders: Economic and Social Research Council, Economic and Social Research Council

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