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Equity Home Bias in a Capital Market Union
I study the social efficiency and aggregate effects of equity home bias using a general equilibrium model with nominal rigidities and a fixed exchange rate. I find that the source of home bias is key for analyzing the wedge between equilibrium and socially optimal levels of home bias. Surprisingly,...
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Formato: | Online Artículo Texto |
Lenguaje: | English |
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Palgrave Macmillan UK
2023
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Acceso en línea: | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9976695/ http://dx.doi.org/10.1057/s41308-023-00197-9 |
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author | Sihvonen, Markus |
author_facet | Sihvonen, Markus |
author_sort | Sihvonen, Markus |
collection | PubMed |
description | I study the social efficiency and aggregate effects of equity home bias using a general equilibrium model with nominal rigidities and a fixed exchange rate. I find that the source of home bias is key for analyzing the wedge between equilibrium and socially optimal levels of home bias. Surprisingly, when home bias is due to labor income hedging effects, stock positions tend to be approximately efficient despite the aggregate demand externalities induced by the rigidities. On the other hand, home stock positions are excessive when home bias is due to financial frictions or biased expectations. The key theoretical results hold numerically well in a more general quantitative model. |
format | Online Article Text |
id | pubmed-9976695 |
institution | National Center for Biotechnology Information |
language | English |
publishDate | 2023 |
publisher | Palgrave Macmillan UK |
record_format | MEDLINE/PubMed |
spelling | pubmed-99766952023-03-02 Equity Home Bias in a Capital Market Union Sihvonen, Markus IMF Econ Rev Research Article I study the social efficiency and aggregate effects of equity home bias using a general equilibrium model with nominal rigidities and a fixed exchange rate. I find that the source of home bias is key for analyzing the wedge between equilibrium and socially optimal levels of home bias. Surprisingly, when home bias is due to labor income hedging effects, stock positions tend to be approximately efficient despite the aggregate demand externalities induced by the rigidities. On the other hand, home stock positions are excessive when home bias is due to financial frictions or biased expectations. The key theoretical results hold numerically well in a more general quantitative model. Palgrave Macmillan UK 2023-03-01 /pmc/articles/PMC9976695/ http://dx.doi.org/10.1057/s41308-023-00197-9 Text en © International Monetary Fund 2023, Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law. This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic. |
spellingShingle | Research Article Sihvonen, Markus Equity Home Bias in a Capital Market Union |
title | Equity Home Bias in a Capital Market Union |
title_full | Equity Home Bias in a Capital Market Union |
title_fullStr | Equity Home Bias in a Capital Market Union |
title_full_unstemmed | Equity Home Bias in a Capital Market Union |
title_short | Equity Home Bias in a Capital Market Union |
title_sort | equity home bias in a capital market union |
topic | Research Article |
url | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9976695/ http://dx.doi.org/10.1057/s41308-023-00197-9 |
work_keys_str_mv | AT sihvonenmarkus equityhomebiasinacapitalmarketunion |