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Theoretical Perspectives on Financial Globalization

Abstract

Standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of `financial globalization,' investors still hold a disproportionate share of local equities in their portfolio: the `equity home bias.’ Their consumption basket is also tilted toward domestic goods: the `consumption home bias.’ In the data, these two biases are positively correlated across countries. We review the different theories that can explain this pattern of the data: hedging motives in portfolio decisions and frictions in international financial markets.
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hal-03394054 , version 1 (22-10-2021)

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Nicolas Coeurdacier. Theoretical Perspectives on Financial Globalization: Trade Costs and Home Bias. Gerard Jr. Caprio. Handbook of Safeguarding Global Financial Stability - Volume 2, Elsevier B.V., pp.201 - 207, 2013, 9780123978752. ⟨hal-03394054⟩
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