Revisiting the home bias puzzle: Downside equity risk

Equity Home Bias: Can Information Cost Explain the Puzzle?

The Role of Institutional Investors in Equity Trading: An Explanation of the Home Bias Puzzle∗

This paper postulates that management performance evaluation is a source of divergence between institutional investors and households’ optimal portfolio decisions. In a partial equilibrium setting, the objective of a representative household is modeled as the maximization of expected utility (an increasing and concave function, in order to accommodate risk aversion) of final wealth. Yet, the in...

Information Immobility and the Home Bias Puzzle

Many explanations for home or local bias rely on information asymmetry: investors know more about their home assets. A criticism of these theories is that asymmetry should disappear when information is tradable. This criticism is flawed. If investors have asymmetric prior beliefs, but choose how to allocate limited learning capacity before investing, they will not necessarily learn foreign info...

The Equity Premium Puzzle and the Risk-free Rate Puzzle

This paper studies the implications for general equilibnum asset pricing of a class of Kreps-Porteus nonexpected utility preferences characterized by a constant intertemporal elasticity of substitution and a constant, but unrelated, coefficient of relative risk aversion. It is shown that relaxing the parametric restriction on tastes imposed by the time-additive expected utility specification do...

The 6D bias and the equity premium puzzle

If decision costs lead agents to update consumption every D periods, then econometricians will find an anomalously low correlation between equity returns and consumption growth (Lynch 1996). We analytically characterize the dynamic properties of an economy composed of consumers who have such delayed updating. In our setting, an econometrician using an Euler equation procedure would infer a coef...