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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26316
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| Title: | Information Immobility and the Home Bias Puzzle |
| Authors: | Nieuwerburgh, Stijn Van
Veldkamp, Laura |
| Keywords: | Home bias
asymmetric information
learning |
| Issue Date: | 21-Nov-2007 |
| Series/Report no.: | FIN-07-017 |
| Abstract: | Many papers have argued that home bias arises because home investors can
predict pays off their home assets more accurately than foreigners can.
But why does this information advantage exist in a world where investors
can learn foreign information? We model investors who are endowed with a
small home information advantage. They can choose what information to
learn before they invest in many risky assets. Surprisingly, even when
home investors can learn what foreigners know, they choose not to. The
reason is that investors profit more from knowing information that
others do not know. Allowing investors to learn amplifies their initial
information asymmetry. The model explains local and industry bias as
well as observed patterns of foreign investments, portfolio
out-performance and asset prices. Finally, we outline new avenues for
empirical research. |
| URI: | http://hdl.handle.net/2451/26316 |
| Appears in Collections: | Finance Working Papers
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