The Home Bias in Equities and Distribution Costs

36 Pages Posted: 23 Jun 2015

See all articles by Philipp Harms

Philipp Harms

Johannes Gutenberg University Mainz

Mathias Hoffmann

Deutsche Bundesbank

Christina Ortseifer

Johannes Gutenberg University Mainz

Multiple version iconThere are 2 versions of this paper

Date Written: July 2015

Abstract

We show that incorporating distribution costs into a general equilibrium model of international portfolio choice helps to explain 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 agents have an incentive to hedge labor income risk by purchasing foreign equity. This is because the existence of a retail sector affects both the correlation of domestic returns with the domestic price level and the correlation between financial and non‐financial income.

Keywords: Home bias, international financial market integration, international risk sharing, JEL classification: F41

JEL Classification: G11, G15

Suggested Citation

Harms, Philipp and Hoffmann, Mathias and Ortseifer, Christina, The Home Bias in Equities and Distribution Costs (July 2015). The Scandinavian Journal of Economics, Vol. 117, Issue 3, pp. 983-1018, 2015. Available at SSRN: https://ssrn.com/abstract=2621829 or http://dx.doi.org/10.1111/sjoe.12105

Philipp Harms (Contact Author)

Johannes Gutenberg University Mainz ( email )

Saarstrasse 21
Mainz, D-55099
Germany

Mathias Hoffmann

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Christina Ortseifer

Johannes Gutenberg University Mainz ( email )

Saarstrasse 21
Mainz, D-55099
Germany

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