In this paper, we decompose attention allocation in two components -- the familiar and the surprising -- with opposite implications for US purchases of foreign stocks. On one hand, familiarity-induced attention leads to an increase in US holdings of foreign equities. On the other hand,...

We study the asset pricing implications of attention allocation theories. These theories allow us to predict the arrival of private information by observing investors' behavior. Specifically, attention allocation theories suggest that the arrival of private news to local investors lead to an...

Importers rarely observe the price of every good in every market because of informational frictions. In this paper, we aim to explain how the presence of such frictions shapes the pattern of trade across countries. To this end, we introduce rationally inattentive importers in the Ricardian trade...

This paper presents a rational expectations model of asset prices with rationally inattentive investors that, unlike previous papers, can explain both the substantial amount of equity wealth invested domestically and the puzzling time series behavior of the home bias - an initial plateau before...

We add quality uncertainty to a two-country trade model with CES preference and monopolistic competition. There are two kinds of firms - low quality and high quality. Quality is perfectly observable in the domestic market but not in the foreign market. Exporters use price to signal their...

Importers rarely observe the price of every good in every market because of information frictions. In this paper, we seek to explain how the presence of such frictions shape the flow of goods between countries. To this end, we introduce rationally inattentive importers in a multi-country...

This paper presents a rational expectations model of asset prices with rationally inattentive investors that, unlike previous papers, can explain both the substantial amount of equity wealth invested domestically and the puzzling time series behavior of the home bias - an initial plateau before...

This paper explains financial contagion between two independent stock markets by fluctuations in international investors' attention allocation. I model the process of attention allocation that underlies portfolio investment in international markets using rationally inattentive agents. Investors...

The challenge of evaluating asymmetric information theories relies on assessing the pieces of information investors decide to process. This paper overcomes such challenge exploring a unique dataset containing the "search/click-through" behavior of internet search engine users. We analyze the...