Replication data for: Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle

Principal Investigator(s): View help for Principal Investigator(s) Philippe Bacchetta; Eric van Wincoop

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Project Citation:

Bacchetta, Philippe, and van Wincoop, Eric. Replication data for: Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle. Nashville, TN: American Economic Association [publisher], 2010. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-11. https://doi.org/10.3886/E112359V1

Project Description

Summary: A major puzzle in international finance is that high interest rate currencies tend to appreciate (forward discount puzzle). Motivated by the fact that only a small fraction of foreign currency holdings is actively managed, we calibrate a two-country model in which agents make infrequent portfolio decisions. We show that the model can account for the forward discount puzzle. It can also account for several related empirical phenomena, including that of "delayed overshooting." We also show that making infrequent portfolio decisions is optimal as the welfare gain from active currency management is smaller than the corresponding fees. (JEL F31, G11, G15)

Scope of Project

JEL Classification:
      F31 Foreign Exchange
      G11 Portfolio Choice; Investment Decisions
      G15 International Financial Markets

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V1 [2019-10-11]

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