The Home Bias in Equities and Distribution Costs

64 Pages Posted: 8 Jun 2016

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: 2010

Abstract

We show that including distribution costs into a general equilibrium model of international portfolio choice contributes to explaining 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 nonfinancial income.

Keywords: International Financial Market Integration, International Risk Sharing, Home Bias

JEL Classification: F41, G11, G15

Suggested Citation

Harms, Philipp and Hoffmann, Mathias and Ortseifer, Christina, The Home Bias in Equities and Distribution Costs (2010). Bundesbank Series 1 Discussion Paper No. 2010,24. Available at SSRN: https://ssrn.com/abstract=2785388

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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