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The determinants of international investment and attention allocation: Using internet search query data

  • Mondria, Jordi
  • Wu, Thomas
  • Zhang, Yi

This paper explores the joint determination of home bias and attention allocation. We overcome the typical challenge associated with evaluating attention allocation theories by using a new internet search query dataset to measure how much information investors decide to process. Employing an instrumental variables approach, we find empirical evidence of a two-way causality between home bias and attention. Our estimates suggest that if all countries were to receive the same level of attention as the U.S., then the average home bias by U.S. investors would fall from 85.2% to 57.3%.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022-1996(10)00044-9
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 82 (2010)
Issue (Month): 1 (September)
Pages: 85-95

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Handle: RePEc:eee:inecon:v:82:y:2010:i:1:p:85-95
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  18. Falkinger, Josef, 2007. "Attention economies," Journal of Economic Theory, Elsevier, vol. 133(1), pages 266-294, March.
  19. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
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  21. Jordi Mondria, 2006. "Financial Contagion and Attention Allocation," Working Papers tecipa-254, University of Toronto, Department of Economics.
  22. Peng, Lin & Xiong, Wei, 2006. "Investor attention, overconfidence and category learning," Journal of Financial Economics, Elsevier, vol. 80(3), pages 563-602, June.
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  24. Laura Veldkamp & Stijn Van Nieuwerburgh, 2005. "Information Acquisition and Portfolio Underdiversification," 2005 Meeting Papers 77, Society for Economic Dynamics.
  25. Bekaert, Geert, 1995. "Market Integration and Investment Barriers in Emerging Equity Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 75-107, January.
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  27. Gabaix, Xavier & Laibson, David Isaac & Moloche, Guillermo & Stephen, Weinberg, 2003. "The allocation of attention: theory and evidence," MPRA Paper 47339, University Library of Munich, Germany.
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  29. Zhou, Chunsheng, 1998. "Dynamic portfolio choice and asset pricing with differential information," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1027-1051, May.
  30. Mondria, Jordi, 2010. "Portfolio choice, attention allocation, and price comovement," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1837-1864, September.
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