Simultaneous Home Bias and Cross-Holding of Assets Under Information Asimmetry

Giyas Gokkent ()
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Giyas Gokkent: Research Dept, Asset Management Group, National Bank of Abu Dhabi, Postal: PO Box 4, Abu Dhabi, UAE,, http://www.nbad.com/index.php

Economia Internazionale / International Economics, 1999, vol. 52, issue 1, 15-44

Abstract: Investors worldwide hold most of their assets in terms of domestic assets. This phenomenon of home preference seems to co-exist with some degree of cross-holding of assets across countries. Traditional explanations of capital flows based either on interest rate differentials or on portfolio motives do not explain these facts. This paper offers a model based on information asymmetry between domestic residents and foreigners in order to accommodate these empirical observations. In other words, the paper reconciles empirical observation of the existence of home preference - alongside crossholdings - with theoretical predictions of diversification in agents’ portfolios. The model elucidates how home preference behaves when a relevant variable - such as the rate of return -changes. These are then tested using panel data regression.

JEL-codes: F21 G10 G11 (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ecoint:0281

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