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Endogenous asymmetric information and international equity home bias: The effects of portfolio size and information costs

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  • Barron, John M.
  • Ni, Jinlan

Abstract

Equity home bias is one of the major puzzles in international finance. This paper investigates the impact of asymmetric information on equity home bias in a rational expectation model where portfolio managers differ in their levels of initial portfolio size and information acquisition is endogenous. The model characterizes the information acquisition and investment decisions made by each portfolio manager, and the resulting equilibrium. We find that portfolio managers with larger portfolio size acquire information about the foreign asset; this is consistent with new evidence linking the degree of home bias across portfolio managers to portfolio size.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 4 (June)
Pages: 617-635

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:4:p:617-635

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Web page: http://www.elsevier.com/locate/inca/30443

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References

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Citations

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Cited by:
  1. Su, Yongyang & Lau, Marco Chi Keung, 2010. "Strategic asset allocation and intertemporal demands: with commodities as an asset class," MPRA Paper 26337, University Library of Munich, Germany.
  2. Diyarbakirlioglu, Erkin, 2011. "Foreign equity flows and the “Size Bias”: Evidence from an emerging stock market," Emerging Markets Review, Elsevier, vol. 12(4), pages 485-509.
  3. Eichler, Stefan, 2012. "Equity home bias and corporate disclosure," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1008-1032.
  4. Mondria, Jordi & Wu, Thomas & Zhang, Yi, 2010. "The determinants of international investment and attention allocation: Using internet search query data," Journal of International Economics, Elsevier, vol. 82(1), pages 85-95, September.
  5. Ni, Jinlan, 2009. "The effects of portfolio size on international equity home bias puzzle," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 469-478, June.
  6. Jonen, Benjamin & Scheuring, Simon, 2014. "Time-varying international diversification and the forward premium," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 128-148.
  7. Mishra, Anil, 2013. "Measures of Equity Home Bias Puzzle," MPRA Paper 51223, University Library of Munich, Germany.
  8. Diyarbakirlioglu, Erkin, 2011. "Domestic and foreign country bias in international equity portfolios," Journal of Multinational Financial Management, Elsevier, vol. 21(5), pages 301-329.

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