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Foreign direct investment and the equity home bias puzzle

Sven Blank (), Mathias Hoffmann () and Moritz Roth
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Mathias Hoffmann: Deutsche Bundesbank

No 2008, Working Papers from Banco de España

Abstract: The vast macroeconomic literature trying to explain the widely observed equity home bias disregards internationally active firms. In a DSGE model that features the endogenous choice of firms to become internationally active through either exports or foreign direct investment (FDI), we find that the optimal equity holdings of agents are biased towards domestic firms. Our finding indicates that international diversification is not as bad as empirical measures of the equity home bias suggest.

Keywords: country portfolios; multinational firms; international diversification; international trade; foreign direct investment (search for similar items in EconPapers)
JEL-codes: F12 F21 F23 F41 G11 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2020-03
New Economics Papers: this item is included in nep-dge, nep-int and nep-opm
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