Home bias and high turnover in an overlapping generations model with learning
By: by Massimo Guidolin.
Contributors: Federal Reserve Bank of St. Louis.
Series: Working paper ;; 2005-012A; Working paper (Federal Reserve Bank of St. Louis : Online) ;; 2005-012A.
Publisher: Federal Reserve Bank of St. Louis
Published: 2005
Place of publication: [St. Louis, Mo.]
Language: eng
Format: Electronic resource
Subjects: Investments, Foreign -- Econometric models.
Description: "This paper develops a two-country OLG model under the assumption that investors are on a Bayesian learning path.  While investors from both countries receive identical information flows, domestic investors start off with less precise prior beliefs concerning foreign fundamentals.  On a learning path, differences in beliefs and estimation risk generate portfolio biases similar to those observed empirically: home bias in equity portfolios and trend-chasing in international flows.  In addition, due to the higher volatility of the estimates of foreign state variables, our model produces excessive turnover in foreign securities as reported by Tesar and Werner (1995).  We use real GDP data for the US and Europe to calibrate the model and produce simulations that show that under the assumption of a financial liberalization during the 1970s, substantial home bias and excess turnover should have been observed in the subsequent years"--Federal Reserve Bank of St. Louis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 6/27/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.