%0 Unpublished work %T When Bonds Matter: Home Bias in Goods and Assets %+ Département d'économie (Sciences Po) (ECON) %+ Center for Economic Policy Research (CEPR) %+ University of California [Berkeley] (UC Berkeley) %A Coeurdacier, Nicolas %A Gourinchas, Pierre-Olivier %8 2015-03-01 %D 2015 %K International risk sharing %K International portfolios %K Equity home bias %Z Humanities and Social Sciences/Economics and FinancePreprints, Working Papers, ... %X This paper presents a model of international portfolios with real exchange rate and non financial risks that accounts for observed levels of equity home bias. A key feature is that investors can trade domestic and foreign bonds in addition to equities. Bonds matter: in equilibrium, investors structure their bond portfolio to hedge real exchange rate risks and equity home bias arises when non-financial income risk is negatively correlated with equity returns, after controlling for bond returns. Our framework allows us to derive equilibrium bond and equity portfolios in terms of sufficient statistics - directly measurable hedge ratios. We estimate equity and bond portfolios implied by the model for G-7 countries an find strong empirical support for the theory. We are able to account for a significant share of the equity home bias and obtain a currency exposure of bond portfolios comparable to the data. %G English %2 https://sciencespo.hal.science/hal-03470191/document %2 https://sciencespo.hal.science/hal-03470191/file/when-bonds-matter-march-2015.pdf %L hal-03470191 %U https://sciencespo.hal.science/hal-03470191 %~ SHS %~ SCIENCESPO %~ CNRS %~ AO-ECONOMIE %~ ECON-SCPO %~ SCPO_OA %~ SCPO-REPEC