We propose a model to study firm relationships that endogenously determine the correlation structure of asset cash flows. Forming a relationship makes firms face the following trade-off in their valuations: On the one hand, collaboration generates an additional payoff component with a positive...

This paper constructs a new measure of attention allocation by local investors relative to nonlocals using aggregate search volume from Google. We first present a conceptual framework in which local investors optimally choose to focus their attention on local stocks when they receive private...

This paper provides suggestive evidence of financial contagion between regions by fluctuations in international investors' attention allocation. Using Financial Times news stories about Thailand as a proxy for attention allocated to Southeast Asia, we find that the increase in uncertainty about...

This paper explains financial contagion between two independent stock markets by fluctuations in international investors' attention allocation. I model the process of attention allocation that underlies portfolio investment in international markets using rationally inattentive agents. Investors...

This paper presents a rational expectations model of asset prices with rationally inattentive investors that, unlike previous papers, can explain both the substantial amount of equity wealth invested domestically and the puzzling time series behavior of the home bias - an initial plateau before...

Why do investors excessively tilt their portfolio towards domestic assets? Recent studies suggest asymmetric information plays a significant role in the home equity bias puzzle. A key assumption in theoretical models is that agents invest in assets and process information on their own. However,...

In many scenarios, investors in financial markets are uncertain about the relationship between two firms and have to rely on firms' disclosure of such relationship. We develop a theory to study the asset pricing implications of this relationship uncertainty and how such relationship uncertainty...