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RESEARCH PRODUCT
The Home Bias in Equities and Distribution Costs
Christina OrtseiferPhilipp HarmsMathias Hoffmannsubject
Economics and EconometricsIncentiveGeneral equilibrium theoryFinancial economicsEquity (finance)EconomicsPortfolioPrice levelReplicateMonetary economicsProject portfolio managementPurchasingdescription
We show that incorporating distribution costs into a general equilibrium model of international portfolio choice helps to explain 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 non-financial income.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2015-03-05 | The Scandinavian Journal of Economics |