Endogenous Acquisition of Information and the Equity Home Bias
(2009) In Economica 76(304). p.741-759- Abstract
- 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.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/1387747
- author
- Lundtofte, Frederik LU
- organization
- publishing date
- 2009
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- equity home bias, information acquisition, information costs
- in
- Economica
- volume
- 76
- issue
- 304
- pages
- 741 - 759
- publisher
- Wiley-Blackwell
- external identifiers
-
- wos:000269976600007
- scopus:70349495516
- ISSN
- 1468-0335
- DOI
- 10.1111/j.1468-0335.2008.00728.x
- language
- English
- LU publication?
- yes
- id
- 39a2576e-896a-4450-9e26-0a5b826c97d5 (old id 1387747)
- date added to LUP
- 2016-04-01 12:20:03
- date last changed
- 2022-02-26 05:38:50
@article{39a2576e-896a-4450-9e26-0a5b826c97d5, abstract = {{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.}}, author = {{Lundtofte, Frederik}}, issn = {{1468-0335}}, keywords = {{equity home bias; information acquisition; information costs}}, language = {{eng}}, number = {{304}}, pages = {{741--759}}, publisher = {{Wiley-Blackwell}}, series = {{Economica}}, title = {{Endogenous Acquisition of Information and the Equity Home Bias}}, url = {{http://dx.doi.org/10.1111/j.1468-0335.2008.00728.x}}, doi = {{10.1111/j.1468-0335.2008.00728.x}}, volume = {{76}}, year = {{2009}}, }