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Portfolio Selection with Endogenous Estimation Risk

Author

Listed:
  • Diego Nocetti

    (The University of Memphis)

Abstract

I explore how investors allocate mental effort to learn about the mean return of a number of assets and I analyze how this allocation changes the portfolio selection problem. I show that the endogeneity of estimation risk alters the comparative statics of portfolio choice and provides an explanation to Huberman's (2001) empirical findings that “Familiarity Breeds Investment”.

Suggested Citation

  • Diego Nocetti, 2006. "Portfolio Selection with Endogenous Estimation Risk," Economics Bulletin, AccessEcon, vol. 7(6), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-05g10010
    as

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    References listed on IDEAS

    as
    1. Massimo Massa & Andrei Simonov, 2006. "Hedging, Familiarity and Portfolio Choice," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 633-685.
    2. Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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