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http://hdl.handle.net/10419/58851
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| Title: | | Private information, human capital, and optimal 'home bias' in financial markets  |
| Authors: | | Ehrlich, Isaac Shin, Jong Kook Yin, Yong |
| Issue Date: | | 2011 |
| Series/Report no.: | | Discussion Paper series, Forschungsinstitut zur Zukunft der Arbeit 6060 |
| Abstract: | | By allowing for imperfectly informed markets and the role of private information, we offer new insights about observed deviations of portfolio concentrations in domestic relative to foreign risky assets, or home bias, from what standard finance models predict. Our model ascribes the bias to endogenous information acquisition bolstered by investors' human capital. We develop discriminating hypotheses about the influence of specific and general human capital endowments and direct and opportunity costs of managing risky assets in determining whether to hold these assets, and how the assets' portfolio shares vary across investors and financial markets. These hypotheses are supported by numerical and econometric analyses of panel data from the US over 1992-2007, and 23 international financial markets over 2001-2007. The results indicate the existence of differences across countries in the degree to which home asset prices are information-revealing, which may be relevant for fully understanding the global financial crisis of 2007-09. |
| Subjects: | | private information human capital home bias financial markets risky assets global financial crisis |
| JEL: | | D82 F30 G11 G12 G15 J24 |
| Persistent Identifier of the first edition: | | urn:nbn:de:101:1-201111072746 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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