Netherlands company pension funds international portfolio diversification: An empirical analysis 1967 I–1972 II

A model of portfolio behaviour is developed, based on the assumption that the distribution of a portfolio over different countries is determined by the general level of returns and costs of investments in those countries. From the model an iso-capital exports line is derived. With the help of this line it is shown under which circumstances ‘perverse’ capital movements will occur. The model implies that only temporary compensating operations on the domestic money and capital markets may be sufficient to make a domestic monetary policy effective.A partial adjustment version of the model is estimated for Netherlands company pension funds.