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Asymmetric Information, Portfolio Managers, and Home Bias

Author

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  • Wioletta Dziuda
  • Jordi Mondria

Abstract

We propose a model of delegated asset management in which individual investors are more informed about the domestic market than the foreign market and face uncertainty about quality of portfolio managers. The model shows that asymmetric information of individual investors results in home bias even if professional fund managers are equally well informed about all markets. Additionally, the model generates predictions about the size and the quality of mutual funds that are consistent with empirical studies: there are fewer mutual funds investing domestically, but their quality and market value are higher.

Suggested Citation

  • Wioletta Dziuda & Jordi Mondria, 2010. "Asymmetric Information, Portfolio Managers, and Home Bias," Working Papers tecipa-393, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-393
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    Keywords

    Asymmetric Information; Portfolio Managers; and Home Bias;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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