Endogenous Acquisition of Information and the Equity Home Bias
Author
Summary, in English
This paper investigates the extent to which differences in information costs can explain the equity home bias puzzle. In a model where information costs are higher for the Foreign asset than for the Home asset, we show that---if cost functions are convex and the assets have identical return characteristics---the expected size of the home bias in terms of differences in expected demands is positive and increasing in expected excess returns and risk, but decreasing in risk aversion. However, a calibration to US data suggests that information costs can explain only a small fraction of the observed home bias.
Department/s
Publishing year
2009
Language
English
Pages
741-759
Publication/Series
Economica
Volume
76
Issue
304
Links
Document type
Journal article
Publisher
Wiley-Blackwell
Topic
- Economics
Keywords
- equity home bias
- information acquisition
- information costs
Status
Published
ISBN/ISSN/Other
- ISSN: 1468-0335