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The Home Bias in Equities and Distribution Costs

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We show that including distribution costs into a general equilibrium model of inter- national portfolio choice contributes to explaining the "home bias" in international equity investment. Our model is able to replicate observed investment positions for a wide range of parameter values, even if agents have an incentive to hedge labor income risk by purchasing foreign equity. This is because the existence of a retail sector affects both the correlation of domestic returns with the domestic price level and the correlation between financial and nonfinancial income.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 10.03.

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Length: 44 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:szg:worpap:1003

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  7. Corsetti, Giancarlo & Dedola, Luca, 2003. "Macroeconomics of International Price Discrimination," CEPR Discussion Papers 3710, C.E.P.R. Discussion Papers.
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  13. Nicolas Coeurdacier & Pierre-Olivier Gourinchas, 2009. "When bonds matter: home bias in goods and assets," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
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  16. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
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