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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.

Suggested Citation

  • Barron, John M. & Ni, Jinlan, 2008. "Endogenous asymmetric information and international equity home bias: The effects of portfolio size and information costs," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 617-635, June.
  • Handle: RePEc:eee:jimfin:v:27:y:2008:i:4:p:617-635
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    References listed on IDEAS

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    Cited by:

    1. Numan Ülkü & Enzo Weber, 2014. "Identifying the Interaction between Foreign Investor Flows and Emerging Stock Market Returns," Review of Finance, European Finance Association, vol. 18(4), pages 1541-1581.
    2. Eichler, Stefan, 2012. "Equity home bias and corporate disclosure," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1008-1032.
    3. repec:eee:riibaf:v:42:y:2017:i:c:p:544-558 is not listed on IDEAS
    4. 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.
    5. Mishra, Anil V., 2016. "Foreign bias in Australian-domiciled mutual fund holdings," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 101-123.
    6. 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.
    7. repec:eee:revfin:v:33:y:2017:i:c:p:41-54 is not listed on IDEAS
    8. 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.
    9. 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.
    10. 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.
    11. Diyarbakirlioglu, Erkin, 2011. "Domestic and foreign country bias in international equity portfolios," Journal of Multinational Financial Management, Elsevier, vol. 21(5), pages 301-329.
    12. repec:rss:jnljfe:v2i4p2 is not listed on IDEAS
    13. Mishra, Anil V., 2015. "Measures of equity home bias puzzle," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 293-312.
    14. Erkin Diyarbakirlioglu, 2011. "Foreign equity flows and the "Size Bias" : Evidence from an emerging stock market," Post-Print hal-01127657, HAL.

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