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Information Immobility and the Home Bias Puzzle




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    • Stijn Van Nieuwerburgh is with NYU Stern's Finance Department and NBER and Laura Veldkamp is with NYU Stern's Economics Department and NBER. Thanks to Campbell Harvey and an anonymous associate editor and referee for their comments, which substantially improved the paper. Thanks also to Pol Antras; Dave Backus; Pierre-Olivier Gourinchas; Urban Jermann; David Lesmond; Karen Lewis; Anthony Lynch; Arzu Ozoguz; Hyun Shin; Chris Sims; Eric Van Wincoop; and Mark Wright; participants at the following conferences: AEA, AFA, Banque de France conference on Economic Fluctuations Risk and Policy, Budapest SED, CEPR Asset Pricing meetings in Gerzensee, CEPR-National Bank of Belgium conference on international adjustment, Cleveland Fed International Macroeconomics and Finance conference, Econometric Society, EEA, Financial Economics and Accounting, Financial Management Association, Prague workshop in macro theory, NBER EF&G meetings, and NBER summer institute in International Finance and Macro; and seminar participants at Columbia GSB, Emory, Illinois, Iowa, GWU, LBS, LSE, Minneapolis Fed, MIT, New York Fed, NYU, Ohio State, Princeton, Rutgers, UCLA, UCSD, and Virginia for helpful comments and discussions. Laura Veldkamp thanks Princeton University for its hospitality and financial support through the Peter B. Kenen fellowship.


Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why does global information access not 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 outperformance, and asset prices. Finally, we propose new avenues for empirical research.