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A global equilibrium asset pricing model with home preference / Bruno Solnik in Management science, Vol. 58 N° 2 (Février 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 2 (Février 2012) . - pp. 273-292 Titre : A global equilibrium asset pricing model with home preference Type de document : texte imprimé Auteurs : Bruno Solnik, Auteur ; Luo Zuo, Auteur Année de publication : 2012 Article en page(s) : pp. 273-292 Note générale : Management Langues : Anglais (eng) Mots-clés : International  asset  pricing  Home  bias  Familiarity  Regret Résumé : We develop a global equilibrium asset pricing model assuming that investors suffer from foreign aversion, a preference for home assets based on familiarity. Using a utility formulation inspired by regret theory, we derive closed-form solutions. When the degree of foreign aversion is high in a given country, investors place a high valuation on domestic equity, which results in a low expected return. Thus, the model generates the simple prediction that a country's degree of home bias and the expected return of its domestic assets should be inversely related. Our predicted relation between the degree of home bias and a country's expected return has the opposite sign predicted by models that assume some form of market segmentation. Using International Monetary Fund portfolio data, we find that expected returns are negatively related to home bias. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/2/273.abstract [article] A global equilibrium asset pricing model with home preference [texte imprimé] / Bruno Solnik, Auteur ; Luo Zuo, Auteur . - 2012 . - pp. 273-292. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 2 (Février 2012) . - pp. 273-292 Mots-clés : International  asset  pricing  Home  bias  Familiarity  Regret Résumé : We develop a global equilibrium asset pricing model assuming that investors suffer from foreign aversion, a preference for home assets based on familiarity. Using a utility formulation inspired by regret theory, we derive closed-form solutions. When the degree of foreign aversion is high in a given country, investors place a high valuation on domestic equity, which results in a low expected return. Thus, the model generates the simple prediction that a country's degree of home bias and the expected return of its domestic assets should be inversely related. Our predicted relation between the degree of home bias and a country's expected return has the opposite sign predicted by models that assume some form of market segmentation. Using International Monetary Fund portfolio data, we find that expected returns are negatively related to home bias. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/2/273.abstract