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http://ssrn.com/abstract=1661995
 
 

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Human Capital, Endogenous Information Acquisition, and Home Bias in Financial Markets


Isaac Ehrlich


State University of New York at Buffalo - Department of Economics; National Bureau of Economic Research (NBER); University of Chicago - University of Chicago Press; Institute for the Study of Labor (IZA)

Jong Kook Shin


Queen's University Belfast

Yong Yin


State University of New York (SUNY), Buffalo - College of Arts & Sciences - Department of Economics

August, 19 2010

Hong Kong Institute of Monetary Research WP No. 20, 2010

Abstract:     
Considerable attention has been devoted in the financial literature to excessive portfolio concentrations in domestic risky assets relative to those predicted by standard finance models – generally identified as “home bias” – across international markets. The innovation we offer is ascribing home bias to endogenous information acquisition, or “asset management” (see EHY 2008), resulting from variations in human capital endowments. We develop discriminating hypotheses about the roles of “specific” and “general” human capital endowments and the direct and opportunity costs of asset management in determining how home bias varies among individual investors and across financial markets. Our model also provides insights concerning differences across countries in the degree to which their domestic asset prices are “information revealing”. These hypotheses are tested against 8 national probability samples of individual portfolio compositions in the US over 1992-2007, and 7 international samples over 2001-2007 including 23 countries. The findings are consistent with our hypotheses.

Number of Pages in PDF File: 56

JEL Classification: D82, F30, G11, G12, G15, J24

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Date posted: August 21, 2010  

Suggested Citation

Ehrlich, Isaac and Shin, Jong Kook and Yin, Yong, Human Capital, Endogenous Information Acquisition, and Home Bias in Financial Markets (August, 19 2010). Hong Kong Institute of Monetary Research WP No. 20, 2010. Available at SSRN: http://ssrn.com/abstract=1661995 or http://dx.doi.org/10.2139/ssrn.1661995

Contact Information

Isaac Ehrlich (Contact Author)
State University of New York at Buffalo - Department of Economics ( email )
415 Fronczak Hall
Buffalo, NY 14260
United States
716-645 2121 (Phone)
716-645 2127 (Fax)
HOME PAGE: http://wings.buffalo.edu/economics/ehrlich.htm
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
University of Chicago - University of Chicago Press ( email )
1427 E. 60th Street
Chicago, IL 60637
United States
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
Jong Kook Shin
Queen's University Belfast ( email )
25 University Square
Belfast, BT7 1NN
United Kingdom
Yong Yin
State University of New York (SUNY), Buffalo - College of Arts & Sciences - Department of Economics ( email )
Buffalo, NY 14260
United States
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