We show that including distribution costs into a general equilibrium model of international portfolio choice contributes to explaining the “home bias” in international equity investment. Our model is able to replicate observed investment positions for a wide range of parameter values, even...

We show that including distribution costs into a general equilibrium model of international portfolio choice contributes to explaining 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...

We show that including distribution costs into a general equilibrium model of international portfolio choice contributes to explaining 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...

The majority of general equilibrium models of international portfolio holdings differ substantially in their modeling procedures but typically feature a term that captures the relationship between real exchange rate changes and relative, i.e. home vs. foreign, equity market returns. However,...

In this paper I explore the role of portfolio diversification in explaining the distribution of foreign investment across countries. I capture the portfolio diversification motive by a measure of country-specific riskiness, “covariance risk,” which I construct as how countries' growth rates...

Equity home bias is one of the most enduring puzzles in international finance. In this paper, I start out by documenting a novel stylized fact about home bias: countries with weaker domestic institutions hold fewer foreign assets. I then explore a macroeconomic mechanism by which the presence of...

Anecdotal evidence suggests that investor protection affects the demand for equity, but existing theories emphasize only the effect of investor protection on the supply of equity. We build a model showing that the demand for equity is important in explaining financial development. If the level...

We provide new evidence that international portfolios reflect the underlying heterogeneity in investors' beliefs. Using data on foreign sovereign debt holdings of European banks matched with their forecasts on future bond yields, we find that expecting higher returns and having more accurate...

We provide new evidence that international portfolios reflect the underlying heterogeneity in investors' beliefs. Using data on foreign sovereign debt holdings of European banks matched with their forecasts on future bond yields, we find that expecting higher returns and having more accurate...