NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Information Immobility and the Home Bias Puzzle

Stijn Van Nieuwerburgh, Laura Veldkamp

NBER Working Paper No. 13366
Issued in September 2007
NBER Program(s):   AP   EFG   IFM   ME

Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why doesn't global information access eliminate this asymmetry? We model investors, endowed with a small home information advantage, who choose what information to learn before they invest. Surprisingly, even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know. Learning amplifies information asymmetry. The model matches patterns of local and industry bias, foreign investments, portfolio out-performance and asset prices. Finally, we propose new avenues for empirical research.

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An online appendix is available for this publication.

This paper was revised on April 23, 2008

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Published: Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, 06.

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