Information Immobility and the Home Bias Puzzle

45 Pages Posted: 10 Sep 2007 Last revised: 9 Jan 2022

See all articles by Stijn Van Nieuwerburgh

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

Laura Veldkamp

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

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Date Written: September 2007

Abstract

Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why doesn't global information access eliminate this asymmetry? We model investors, endowed with a small home information advantage, who choose what information to learn before they invest. Surprisingly, even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know. Learning amplifies information asymmetry. The model matches patterns of local and industry bias, foreign investments, portfolio out-performance and asset prices. Finally, we propose new avenues for empirical research.

Suggested Citation

Van Nieuwerburgh, Stijn and Veldkamp, Laura, Information Immobility and the Home Bias Puzzle (September 2007). NBER Working Paper No. w13366, Available at SSRN: https://ssrn.com/abstract=1012820

Stijn Van Nieuwerburgh (Contact Author)

Columbia University Graduate School of Business ( email )

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Laura Veldkamp

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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