The Home Bias in Equities and Distribution Costs

Philipp Harms, Mathias Hoffmann () and Christina Ortseifer ()
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Christina Ortseifer: Johannes Gutenberg University Mainz,, http://www.uni-mainz.de/

No 10.03, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: We show that including distribution costs into a general equilibrium model of inter- national portfolio choice contributes to explaining 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 nonfinancial income.

Pages: 44 pages
Date: 2010-10
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Related works:
Journal Article: The Home Bias in Equities and Distribution Costs (2015)
Working Paper: The home bias in equities and distribution costs (2010)
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