International Diversification and Information Heterogeneity

62 Pages Posted: 6 Oct 2017 Last revised: 20 Aug 2019

See all articles by Filippo De Marco

Filippo De Marco

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Marco Macchiavelli

Board of Governors of the Federal Reserve System

Rosen Valchev

Boston College

Multiple version iconThere are 2 versions of this paper

Date Written: July 3, 2018

Abstract

We provide direct evidence that the heterogeneity in international portfolios reflects objective differences in information sets and quality. Using data on sovereign debt holdings of European banks, we find that (among other things) (i) higher expected returns and more accurate forecasts are associated with larger holdings and (ii) the more accurate the forecast, the greater is the elasticity of portfolio holdings to expected returns. The results suggest that investors internalize and use their advantage in information production accordingly when choosing their investment in foreign assets. To rationalize these facts, we propose a new model that incorporates both a fixed cost of investing abroad and an endogenous information choice. We find that both components are important to match the data.

Keywords: International Investment, Portfolio Choice, Expectations, Information Choice

JEL Classification: F21, F36, G11, D82

Suggested Citation

De Marco, Filippo and Macchiavelli, Marco and Valchev, Rosen, International Diversification and Information Heterogeneity (July 3, 2018). Available at SSRN: https://ssrn.com/abstract=3048344 or http://dx.doi.org/10.2139/ssrn.3048344

Filippo De Marco (Contact Author)

Bocconi University - Department of Finance ( email )

Department of Finance
Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Marco Macchiavelli

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Rosen Valchev

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
62
Abstract Views
547
rank
289,765
PlumX Metrics