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Information Immobility and the Home Bias Puzzle

  • Stijn Van Nieuwerburgh
  • Laura Veldkamp

Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why doesn't global information access eliminate this asymmetry? We model investors, endowed with a small home information advantage, who choose what information to learn before they invest. Surprisingly, even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know. Learning amplifies information asymmetry. The model matches patterns of local and industry bias, foreign investments, portfolio out-performance and asset prices. Finally, we propose new avenues for empirical research.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13366.

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Date of creation: Sep 2007
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Publication status: published as Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, 06.
Handle: RePEc:nbr:nberwo:13366
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