884,763 research outputs found

    Is Home Bias in Assets Related to Home Bias in Goods?

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    Obstfeld and Rogoff (2000) have reinvigorated an old literature on the link between home bias in the goods market and home bias in the asset market by arguing that trade costs in the goods market can account for the observed portfolio home bias. The key link between home bias in the two markets is the real exchange rate. Home bias in consumption implies a different expenditure allocation across countries, which leads to different inflation rates when measured in the same currency. This leads investors from different countries to choose different portfolios to hedge against inflation uncertainty. An older partial equilibrium literature argued that such hedge portfolios are not large enough to produce substantial home bias. We link the general equilibrium and partial equilibrium literatures and show that in both the resulting home bias in the equity market depends on a covariance-variance ratio: the covariance between the real exchange rate and the excess return on home relative to foreign equity, divided by the variance of the excess return. Empirical evidence shows that this ratio and the implied home bias are close to zero, casting significant doubt on a meaningful link between home bias in the goods and asset markets. General equilibrium models that conclude otherwise imply a covariance-variance ratio that is at odds with the data.

    Geography and Intra-National Home Bias: U.S. Domestic Trade in 1949 and 2007

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    This article examines home bias in U.S. domestic trade in 1949 and 2007. We use a unique data set of 1949 carload waybill statistics produced by the Interstate Commerce Commission, and 2007 Commodity Flow Survey data. The results show that home bias was considerably smaller in 1949 than in 2007 and that home bias in 1949 was even negative for several commodities. We argue that the difference between the geographical distribution of the manufacturing activities in 1949 and that of 2007 is an important factor explaining the differences in the magnitudes of home-bias estimates in those years

    Home bias in global bond and equity markets: the role of real exchange rate volatility

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    This paper focuses on the role of real exchange rate volatility as a driver of portfolio home bias, and in particular as an explanation for differences in home bias across financial assets. We present a Markowitz-type portfolio selection model in which real exchange rate volatility induces a bias towards domestic financial assets as well as a stronger home bias for assets with low local currency return volatility. We find empirical support in favour of this hypothesis for a broad set of industrialised and emerging market countries. Not only is real exchange rate volatility an important factor behind bilateral portfolio home bias, but we find that a reduction of monthly real exchange rate volatility from its sample mean to zero reduces bond home bias by up to 60 percentage points, while it reduces equity home bias by only 20 percentage points. JEL Classification: F30, F31, G11, G15capital flows, Exchange rate volatility, global financial markets, home bias, portfolio investment, risk

    Geography and intra-national home bias : U.S. domestic trade in 1949 and 2007

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    This paper examines home bias in U.S. domestic trade in 1949 and 2007. We use a unique data set of 1949 carload waybill statistics produced by the Interstate Commerce Commission, and 2007 Commodity Flow Survey data. The results show that home bias was considerably smaller in 1949 than in 2007 and that home bias in 1949 was even negative for several commodities. We argue that the difference between the geographical distribution of the manufacturing activities in 1949 and that of 2007 is an important factor explaining the differences in the magnitudes of home-bias estimates in those years

    Specialisation : pro and anti-globalizing 1990-2002

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    Specialization alters the incidence of trade costs to buyers and sellers, with pro-and anti-globalizing effects on 76 countries from 1990-2002. The structural gravity model yields measures of Constructed Home Bias and the Total Factor Productivity effect of changing incidence. A bit more than half the world's countries experience declining constructed home bias and rising real output while the remainder of countries experi- ence rising home bias and falling real output. The effects are big for the outliers. A novel test of the structural gravity model restrictions shows it comes very close in an economic sense

    Home Bias, Transaction Costs, and Prospects for the Euro: A More Detailed Analysis

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    This paper brings together the literature on determination of home bias in equity holdings and the portfolio balance model of exchange rates to consider whether the dollar might be affected by a change in transactions costs that alters international portfolio allocations. Our empirical findings lend support to the view that transactions costs have a significant influence on US portfolio holdings, even after accounting for float market share. In addition, new survey evidence on the equity holdings of European firms indicates home bias for European investors, and points to a reduction in the magnitude of this home bias since 1997.Home bias, Transactions costs, Euro, EMU, Europe, exchange rates, portfolio

    Who invests in home equity to exempt wealth from bankruptcy? : [This draft: May 2013]

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    Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios towards home equity. Using US household data for the period 1996 to 2006, we find that household demand for real estate is relatively high if the marginal investment in home equity is covered by the exemption. The home equity bias is more pronounced for younger households that face more financial uncertainty and therefore have a higher ex ante probability of bankruptcy

    The Impact of Technical Barriers to Trade on Home Bias : An application to EU data

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    The purpose of this paper is trying to estimate the impact of technical barriers to trade on bilateral trade flows of individual EU countries and to evaluate the downward impact of national border on trade flows (home bias). Here we try and identify the effect of technical barriers to trade on EU imports applied to data in which sectors where the EU has sought to introduce harmonized technical regulations to remove technical barriers to trade (New Approach, Old Approach, Mutual Recognition) as well as an aggregate of sectors for which technical barriers are deemed to be unimportant. Using the gravity model, we find that home bias remains substantial for products where the EU has sought to introduce harmonized technical regulations to remove technical barriers to trade but mutual recognition sectors exhibit the smallest home bias. Based upon the analysis on the evolution of home bias in the EU, we find no evidence that the home bias has decreased for products where differences in technical regulations are important.home bias, gravity model, European integration, technical barriers to trade

    Is distance dying at last? Falling home bias in fixed effects models of patent citations

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    We examine the “home bias” of international knowledge spillovers as measured by the speed of patent citations (i.e. knowledge spreads slowly over international boundaries). We present the first compelling econometric evidence that the geographical localization of knowledge spillovers has fallen over time, as we would expect from the dramatic fall in communication and travel costs. Our proposed estimator controls for correlated fixed effects and censoring in duration models and we apply it to data on over two million citations between 1975 and 1999. Home bias declines substantially when we control for fixed effects: there is practically no home bias for the more “modern” sectors such as pharmaceuticals and information/communication technologies

    Is Distance Dying at Last? Falling Home Bias in Fixed Effects Models of Patent Citations

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    We examine the "home bias" of international knowledge spillovers as measured by the speed of patent citations (i.e. knowledge spreads slowly over international boundaries). We present the first compelling econometric evidence that the geographical localization of knowledge spillovers has fallen over time, as we would expect from the dramatic fall in communication and travel costs. Our proposed estimator controls for correlated fixed effects and censoring in duration models and we apply it to data on over two million citations between 1975 and 1999. Home bias declines substantially when we control for fixed effects: there is practically no home bias for the more "modern" sectors such as pharmaceuticals and information/communication technologies.Fixed effects, home bias, patent citations, knowledge spillovers
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