Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 27, 2013 erstellt
Description:
The home bias is typically explained by various extra costs for foreign investments, such as higher transaction costs and information asymmetries. These costs have dramatically decreased over the last 15 years: the internet has revolutionized the global flow of information, accounting reports have been converging to uniform international standards, and foreign transaction fees have decreased substantially. Surprisingly, the home-bias has not decreased over this period, and it is as large today as it was in 1998. This paper addresses this puzzling persistence. We show that the home bias induced by a given extra cost is proportional to the “Home Bias Magnification” (HBM) factor: p/(1– p) , where p is the average correlation between markets. Hence, costs that have negligible impact on the home bias for average correlations below 0.5 have dramatic impact for correlations of 0.9. Indeed, the average correlation between markets has been steadily increasing from about 0.4 in the 90's to about 0.9 today. Thus, the decreasing extra costs are increasingly magnified, explaining the persistence of the home bias, and predicting its continuation