International home bias in international finance and business cycles
By: Karen K. Lewis.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- working paper 6351; Working paper series (National Bureau of Economic Research) -- working paper no. 6351.
Publisher: National Bureau of Economic Research
Published: 1998
Place of publication: Cambridge, MA
Language: eng
Number of pages: 59
Subjects: International finance -- Econometric models.; Business cycles -- Econometric models.
Description: Domestic investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest. This phenomenon has been called equity home bias. In the absence of this home bias, investors would optimally diversify away domestic output risk. Therefore, in a world without investor home bias, consumption growth rates would tend to comove across countries even when output growth rates do not. Empirically, however, consumption growth rates tend to have a lower correlation across countries than do output growth rates. Moreover, consumption growth in each country appears to be highly correlated with its own output growth relative to the world. This phenomenon may be called consumption home bias. In this paper, I evaluate existing explanations for these two types of home bias.
Notes: "January 1998."

JEL no. F3, F4, G15.

Includes bibliographical references (p. 52-59).

Electronic access limited to Binghamton University faculty, staff and students for instructional and research purposes only.

Electronic version available via the Internet at the NBER World Wide Web site.

Financial support from the National Science Foundation