In a model that is consistent with the existence of a home bias and with foreign investors that are less informed than domestic investors, we show that unexpectedly high worldwide returns lead to net equity inflows into small countries. In addition, a small country experiences net equity inflows...

A large body research shows a positive relationship between wealth and entrepreneurship and interprets the relationship as providing evidence of liquidity constraints. Recently, however, the liquidity constraint interpretation has been challenged because of the finding that the relationship...