The Home Bias in Equities and Distribution Costs
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.
Year of publication: |
2010-10
|
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Authors: | Harms, Philipp ; Hoffmann, Mathias ; Ortseifer, Christina |
Institutions: | Swiss National Bank, Study Center Gerzensee |
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