Koralai Kirabaeva
Working papers:
- Foreign Direct Investment and Liquidity Risk
abstract: This paper develops a
general equilibrium model which analyzes the composition of investments
(direct vs portfolio) across two countries in the presence of liquidity
shocks and asymmetric information about investment productivity. The
model compares the liquidity benefits of portfolio investments with the
benefits from private information of direct investments. The
equilibrium prices of direct and portfolio investments depend not only
on the expected payoff but also on investors’ liquidity preferences and
uncertainty about the investment productivity. There are two types of
equilibria. In the first type, only investors from country with lower
liquidity risk choose to hold direct investments. In the second type,
investors from both countries hold direct investments. In this case,
there is a possibility of multiple equilibria due to strategic
complementarity which generates self-fulfilling expectations. I address
the effects of increasing the liquidity risk in the host country on the
composition of foreign investments. On one hand, this increases the
preference for liquidity, which leads to a smaller share of foreign
direct investments. On the other hand, it may reduce the adverse
selection problem associated with direct investments, which leads to a
larger share of direct investments. Overall, depending on the
equilibrium type, an increase in the liquidity risk may result in an
increase of foreign direct investment and a decrease of foreign portfolio investment.
increase of foreign direct investment and a decrease of foreign portfolio investment.
presented at:
Cornell-PennState Macro Workshop, PennState University, March 2008
International Economics workshop, Cornell University, March 2008
Cornell-PennState Macro Workshop, PennState University, March 2008
International Economics workshop, Cornell University, March 2008
abstract: This paper presents a
general equilibrium model that explains how the presence of ambiguity
about asset returns affects equilibrium prices and international
portfolio holdings. In particular, I show that if there is a difference
in beliefs about perceived uncertainty then it will lead to bias in
portfolio holdings. My model allows to quantify the effect of ambiguity
and ambiguity attitude on the portfolio holdings and asset prices and
derives an upper bound on the degree of ambiguity aversion for
participation in financial markets. I investigate whether the equity
home bias observed in data can be explained by intermediate degrees of
ambiguity aversion.
Midwest Economics Association Annual Meeting, Chicago, March 2008
SABE Conference, NYU, May 2007 (best graduate student paper award)
Cornell-PennState Macro Workshop, PennState University, April 2007
Contact Information
449A Uris HallCornell University
Department of Economics Ithaca NY 14853
