Private Information, Human Capital, and Optimal 'Home Bias' in Financial Markets

Journal of Human Capital, Vol. 5, No. 3, pp. 255-301, Fall 2011

48 Pages Posted: 31 Jan 2012

See all articles by Isaac Ehrlich

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

Korea University - Sejong Campus

Yong Yin

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

Multiple version iconThere are 4 versions of this paper

Date Written: October 2011

Abstract

By allowing for imperfectly informed markets but optimal private information acquisition, we offer new insights about observed variations in portfolio con- centrations in domestic versus foreign risky assets, or “home bias,” and the degree to which home asset prices are “information revealing.” Our model produces discriminating hypotheses about the role of “specific” and “general” human capital endowments and opportunity costs of managing risky assets in deter- mining whether to hold these assets and how their portfolio shares vary across heterogeneous investors and financial markets. These hypotheses are supported by numerical and econometric analyses of panel data from the United States and 23 international financial markets.

Suggested Citation

Ehrlich, Isaac and Shin, Jong Kook and Yin, Yong, Private Information, Human Capital, and Optimal 'Home Bias' in Financial Markets (October 2011). Journal of Human Capital, Vol. 5, No. 3, pp. 255-301, Fall 2011, Available at SSRN: https://ssrn.com/abstract=1995850

Isaac Ehrlich (Contact Author)

State University of New York at Buffalo - Department of Economics ( email )

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HOME PAGE: http://arts-sciences.buffalo.edu/economics/faculty/faculty-directory/ehrlich.html

National Bureau of Economic Research (NBER) ( email )

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University of Chicago - University of Chicago Press ( email )

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Institute for the Study of Labor (IZA) ( email )

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Jong Kook Shin

Korea University - Sejong Campus ( email )

Sejong
Korea, Republic of (South Korea)

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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