Human Capital, Endogenous Information Acquisition,and Home Bias in Financial Markets
AbstractConsiderable attention has been devoted in the financial literature to excessive portfolio concentrations in domestic risky assets relative to those predicted by standard finance models-generally identified as"home bias"-across international markets. The innovation we offer is ascribing home bias to endogenous information acquisition, or"asset management"(see EHY 2008), resulting from variations in human capital endowments. We develop discriminating hypotheses about the roles of"specific" and"general"human capital endowments and the direct and opportunity costs of asset management in determining how home bias varies among individual investors and across financial markets. Our model also provides insights concerning differences across countries in the degree to which their domestic asset prices are"information revealing".These hypotheses are tested against 8 national probability samples of individual portfolio compositions in the US over 1992-2007, and 7 international samples over 2001-2007 including 23 countries. The findings are consistent with our hypotheses.
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Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 202010.
Length: 56 pages
Date of creation: Jul 2010
Date of revision:
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Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F30 - International Economics - - International Finance - - - General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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- Isaac Ehrlich & William A. Hamlen Jr. & Yong Yin, 2008.
"Asset Management, Human Capital, and the Market for Risky Assets,"
NBER Working Papers
14340, National Bureau of Economic Research, Inc.
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"Information Immobility and the Home Bias Puzzle,"
NBER Working Papers
13366, National Bureau of Economic Research, Inc.
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