Abstract
This paper presents (sufficient) conditions for the domestic investor/consumer to hold in equilibrium a disproportionate share of domestic assets. The analysis is carried out in a general equilibrium framework of products and assets markets, when the source of the uncertainty is productivity shocks in the nontraded goods industries. In the asset markets we allow trade in instruments with a payoff which is not necessarily positively correlated with the price of the consumption good, as the instruments considered in the existing literature. Consequently, in our analysis, in contrast to the existing literature, hedging against price uncertainty is neither necessary nor sufficient for home asset preference.
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