TY  - JOUR
AU  - Ehrlich,Isaac
AU  - Shin,Jong Kook
AU  - Yin,Yong
TI  - Private Information, Human Capital, and Optimal “Home Bias” in Financial Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15668
PY  - 2010
Y2  - January 2010
UR  - http://www.nber.org/papers/w15668
L1  - http://www.nber.org/papers/w15668.pdf
N1  - Author contact info:
Isaac Ehrlich
415 Fronczak Hall
State University of New York at Buffalo
and Center for Human Capital
Box 601520
Buffalo, NY 14260-1520
Tel: 716/645-2121ext 421
Fax: 716/645- 2127
E-Mail: mgtehrl@buffalo.edu

Jong Kook Shin
415 Fronczak Hall
State University of New York at Buffalo
and Center for Human Capital
Box 601520
Buffalo, NY 14260
E-Mail: jongshin@buffalo.edu

Yong Yin
415 Fronczak Hall
State University of New York at Buffalo
and Center for Human Capital 
Box 601520
Buffalo, NY 14260
E-Mail: yyin@buffalo.edu
AB  - By allowing for imperfectly informed markets and the role of private information, we offer new insights about observed deviations of portfolio concentrations in domestic relative to foreign risky assets, or “home bias”, from what standard finance models predict. Our model ascribes the “bias” to endogenous information acquisition bolstered by investors’ human capital. We develop discriminating hypotheses about the influence of “specific” and “general” human capital endowments and direct and opportunity costs of managing risky assets in determining whether to hold these assets, and how the assets’ portfolio shares vary across investors and financial markets. These hypotheses are supported by numerical and econometric analyses of panel data from the US over 1992-2007, and 23 international financial markets over 2001-2007. The results indicate the existence of differences across countries in the degree to which home asset prices are “information-revealing”, which may be relevant for fully understanding the global financial crisis of 2007-09.
ER  -