Information immobility and the home bias puzzle
By: Stijn Van Nieuwerburgh, Laura Veldkamp.
Contributors: Veldkamp, Laura.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13366.; Working paper series (National Bureau of Economic Research) -- working paper no. 13366.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 33
Subjects: Regional economic disparities -- Econometric models
Description: Many papers have argued that home bias arises because home investors can predict payoffs of their home assets more accurately than foreigners can. But why does this information advantage exist in a world where everyone can read the same newspapers, earnings announcements and analyst reports and why would that advantage be large? 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 can explain local and industry bias as well as patterns of foreign investments, portfolio out-performance and asset prices. Finally, we outline new avenues for empirical research.
Notes: "September 2007"

Includes bibliographical references (p. 27-30).

Also available in PDF from the NBER world wide web site (www.nber.org).