The Home Bias in Equities and Distribution Costs2. (5th March 2015)

• Record Type: Journal Article
• Authors: Harms, Philipp; Hoffmann, Mathias; Ortseifer, Christina
• Is Part Of: Scandinavian journal of economics. Volume 117:Number 3(2015:Sep.)
• Page Start: 983
• Page End: 1018
• Publication Date: 2015-03-05
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/sjoe.12105
• Languages: English
• ISSNs: 0347-0520

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>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.</p> </abstract>