Information Immobility and the Home Bias Puzzle

44 Pages Posted: 31 Oct 2008

See all articles by Laura Veldkamp

Laura Veldkamp

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Van Nieuwerburgh

affiliation not provided to SSRN

Date Written: April 2008

Abstract

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.

Keywords: Home bias, asymmetric information, learning

Suggested Citation

Veldkamp, Laura and Nieuwerburgh, Van, Information Immobility and the Home Bias Puzzle (April 2008). NYU Working Paper No. EC-04-32, Available at SSRN: https://ssrn.com/abstract=1292615

Laura Veldkamp (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Van Nieuwerburgh

affiliation not provided to SSRN

No Address Available

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