Wealth Heterogeneity, Information Acquisition and Equity Home Bias: Evidence from U.S. Household Surveys of Consumer Finance

69 Pages Posted: 23 Feb 2018 Last revised: 5 Mar 2021

See all articles by Ronaldo Carpio

Ronaldo Carpio

University of International Business & Economics

Meixin Guo

Tsinghua University, SEM

Yuan Liu

C3IoT

Ju Hyun Pyun

Korea University Business School (KUBS)

Date Written: February 14, 2018

Abstract

The well-known equity home bias has two components: an extensive and intensive margin. Using data on direct stock holdings of U.S. households, we find that the decision to participate in foreign stock markets depends on investor wealth, with richer investors more likely to participate (the extensive margin). We document a new finding: as investor wealth increases, the portfolio share invested in foreign equities tends to decrease (the intensive margin). A noisy rational expectations equilibrium model with wealth heterogeneity, entry costs, and endogenously chosen information processing capacity can generate the new negative relationship and help understand the U.S. household equity home bias along both margins.

Keywords: Equity Home Bias, Extensive and Intensive Margins, Information Acquisition, Entry Cost, Wealth Heterogeneity

JEL Classification: D82, F30, G11

Suggested Citation

Carpio, Ronaldo and Guo, Meixin and Liu, Yuan and Pyun, Ju Hyun, Wealth Heterogeneity, Information Acquisition and Equity Home Bias: Evidence from U.S. Household Surveys of Consumer Finance (February 14, 2018). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3123834 or http://dx.doi.org/10.2139/ssrn.3123834

Ronaldo Carpio

University of International Business & Economics ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

HOME PAGE: http://rncarpio.com

Meixin Guo

Tsinghua University, SEM ( email )

448 Weilun SEM
Tsinghua University
Beijing, Beijing 100084
China

Yuan Liu

C3IoT ( email )

1300 Seaport Blvd.
Redwood City, CA 94036
United States
4084649783 (Phone)

Ju Hyun Pyun (Contact Author)

Korea University Business School (KUBS) ( email )

145 Anam-Ro, Seongbuk-Gu
Seoul, 02841
Korea, Republic of (South Korea)
82-2-3290-2610 (Phone)

HOME PAGE: http://sites.google.com/site/juhyunpyun/research

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