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Theoretical Perspectives on Financial Globalization

Author

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  • Nicolas Coeurdacier

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research)

Abstract

Standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of `financial globalization,' investors still hold a disproportionate share of local equities in their portfolio: the `equity home bias.' Their consumption basket is also tilted toward domestic goods: the `consumption home bias.' In the data, these two biases are positively correlated across countries. We review the different theories that can explain this pattern of the data: hedging motives in portfolio decisions and frictions in international financial markets.

Suggested Citation

  • Nicolas Coeurdacier, 2013. "Theoretical Perspectives on Financial Globalization," SciencePo Working papers Main hal-03394054, HAL.
    • Handle: RePEc:hal:spmain:hal-03394054
    as

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