Home Bias and High Turnover in an Overlapping Generations Model with Learning

  title={Home Bias and High Turnover in an Overlapping Generations Model with Learning},
  author={Massimo Guidolin},
This paper develops a two-country OLG model under the assumption that investors are on a Bayesian learning path. While investors from both countries receive identical information ßows, domestic investors start off with less precise prior beliefs concerning foreign fundamentals. On a learning path, differences in beliefs and estimation risk generate portfolio biases similar to those observed empirically: home bias in equity portfolios and trend-chasing in international ßows. In addition, due to… CONTINUE READING
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