Bacchetta, PhilippeTieche, Simonvan Wincoop, Eric2023-06-052023-06-052023-06-052023-04-1710.1093/rfs/hhad027https://infoscience.epfl.ch/handle/20.500.14299/198063WOS:000983335800001Using data on international equity portfolio allocations by U.S. mutual funds, we estimate a portfolio expression derived from a standard mean-variance portfolio model extended with portfolio frictions. The optimal portfolio depends on the previous month and the buy-and-hold portfolio shares, and a present discounted value of expected excess returns. We estimate expected return differentials and use them in the portfolio regressions. The estimates imply significant portfolio frictions and a modest rate of risk aversion. While mutual fund portfolios significantly respond to expected returns, portfolio frictions lead to a weaker and a more gradual portfolio response to changes in expected returns. Authors have furnished an , which is available on the Oxford University Press Web site next to the link to the final published paper online.Business, FinanceEconomicsBusiness & Economicsf30g11asset price dynamicscapital flowsmicro-evidencereturnsmarketsriskustext::journal::journal article::research article