Information Immobility and the Home Bias Puzzle

Information Immobility and the Home Bias Puzzle

  • STIJN VAN NIEUWERBURGH
  • LAURA VELDKAMP

Article first published online: 20th May 2009 DOI: 10.1111/j.1540-6261.2009.01462.x

Abstract


Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why does global information access not eliminate this asymmetry? We model investors, endowed with a small home information advantage, who choose what information to learn before they invest. Surprisingly, even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know. Learning amplifies information asymmetry. The model matches patterns of local and industry bias, foreign investments, portfolio outperformance, and asset prices. Finally, we propose new avenues for empirical research.

Sign in to access the full article.

Related articles


IPO Underpricing over the Very Long Run

  • DAVID CHAMBERS
  • ELROY DIMSON

Article first published online: 20th May 2009 / DOI: 10.1111/j.1540-6261.2009.01468.x

Read Article

Trading Costs and Returns for U.S. Equities: Estimating Effective Costs from Daily Data

  • JOEL HASBROUCK

Article first published online: 20th May 2009 / DOI: 10.1111/j.1540-6261.2009.01469.x

Read Article

Rank‐Order Tournaments and Incentive Alignment: The Effect on Firm Performance

  • JAYANT R. KALE
  • EBRU REIS
  • ANAND VENKATESWARAN

Article first published online: 20th May 2009 / DOI: 10.1111/j.1540-6261.2009.01470.x

Read Article

Do Stock Mergers Create Value for Acquirers?

  • PAVEL G. SAVOR
  • QI LU

Article first published online: 20th May 2009 / DOI: 10.1111/j.1540-6261.2009.01459.x

Read Article

MISCELLANEA

Article first published online: 20th May 2009 / DOI: 10.1111/j.1540-6261.2009.01471.x

Read Article

Level Playing Fields in International Financial Regulation

  • ALAN D. MORRISON
  • LUCY WHITE

Article first published online: 20th May 2009 / DOI: 10.1111/j.1540-6261.2009.01460.x

Read Article

Are you an Author?


Please read our submission requirements and find out how to submit your paper to the Journal of Finance

Submit a paper