| Sumario: | A multiasset dynamic portfolio balance model is developed based on the maximization of an intertemporal utility function in consumption when investors perform under uncertainty, quadratic adjustment costs, and capital market regulations. Portfolio data of the German private sector for the period 1975Q1-1990Q1 are used to estimate the model's structural parameters. The results show that asset demand is insensitive to return changes and that adjustment costs are low but highly significant, giving rise to moderate lags of adjustment. However, existing capital controls and adjustment costs cannot explain the observed “home bias” in the portfolio.
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