Information Immobility and the Home Bias Puzzle

Stijn Van Nieuwerburgh and Laura Veldkamp ()

No 13366, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D82 F30 F40 G11 G14 (search for similar items in EconPapers)
Date: 2007-09
Note: AP EFG IFM ME
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Related works:
Working Paper: Information Immobility and the Home Bias Puzzle (2005)
Working Paper: Information Immobility and the Home Bias Puzzle (2004)
Journal Article: Information Immobility and the Home Bias Puzzle (2009)
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