The Home Bias in Equities and Distribution Costs

Philipp Harms, Mathias Hoffmann () and Christina Ortseifer

Scandinavian Journal of Economics, 2015, vol. 117, issue 3, 983-1018

Abstract: We show that incorporating distribution costs into a general equilibrium model of international portfolio choice helps to explain the home bias in international equity investment. Our model is able to replicate observed investment positions for a wide range of parameter values, even if agents have an incentive to hedge labor income risk by purchasing foreign equity. This is because the existence of a retail sector affects both the correlation of domestic returns with the domestic price level and the correlation between financial and non-financial income.

Date: 2015
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Working Paper: The Home Bias in Equities and Distribution Costs (2010)
Working Paper: The home bias in equities and distribution costs (2010)
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