Serie: Working Papers. 2008.
Author: Sven Blank, Mathias Hoffmann and Moritz A. Roth.
The vast macroeconomic literature trying to explain the widely observed equity home bias
disregards internationally active firms. In a DSGE model that features the endogenous choice of firms to become internationally active through either exports or foreign direct investment (FDI), we find that the optimal equity holdings of agents are biased towards domestic firms. Our finding indicates that international diversification is not as bad as empirical measures of the equity home bias suggest.