Notations:

$Y_i$ -Financial markets incomes in country i.

$W_i$ -Total financial wealth in country i.

$y_i=Y_i/W_i$ .

$y_{ij}$ -Rate of return for investors from country i in country j.

$S_i$ -Total investment in equity in country i, $s_i=S_i/W_i$ .

$s_i=S_i/W_i$ .

$B_i$ -Total investment in debt instruments in country i.

$d_i$ -Dividend rate in country i.

$r_i$ -Rate of interest in country i.

$g_i$ -Expected capital gain on equity in country.

${\tau }_{di}$ -Expected dividend tax rate of the marginal market participant in country i.

${\tau }_{gi}$ -Expected capital gain tax rate of the marginal market participant in country i.

${\tau }_{ri}$ -Expected interest income tax rate of the marginal market participant in country i.

${\tau }^{*}-\max \left\{{\tau }_i,{\tau }_j\right\}$

$F_{ij}$ -Foreign curent exchnage rate for country i in terms of cuurency j.

$\left(1-\alpha \right)$ -Portion of domestic financial wealth invested abroad.

${\sigma }_i$ -Standard deviation of rates of return in country i.

${\sigma }_{ij}$ -Standard deviation of rates of return for investors from country i in country j.

${\sigma }_{ij}^{*}$ -Overall standard deviation for investors from country i.

${\rho }_{ij}$ -Correlation coefficient between i and j.