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Equity Home Bias Puzzle
The Home bias puzzle is the term given to describe the fact that individuals and institutions in most countries hold only modest amounts of foreign equity, and tend to strongly favor company stock from their home nation. This finding is regarded as puzzling, since observed returns on national equity portfolios suggest substantial benefits from international diversification. Maurice Obstfeld and Kenneth Rogoff identified this as one of the six major puzzles in international macroeconomics. Overview Home bias in equities is a behavioral finance phenomenon and it was first studied in an academic context by Kenneth French and James M. Poterba (1991) and Tesar and Werner (1995). Coval and Moskowitz (1999) showed that home bias is not limited to international portfolios, but that the preference for investing close to home also applies to portfolios of domestic stocks. Specifically, they showed that U.S. investment managers often exhibit a strong preference for locally headquartered f ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Equity (finance)
In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. For example, if someone owns a car worth $24,000 and owes $10,000 on the loan used to buy the car, the difference of $14,000 is equity. Equity can apply to a single asset, such as a car or house, or to an entire business. A business that needs to start up or expand its operations can sell its equity in order to raise cash that does not have to be repaid on a set schedule. In government finance or other non-profit settings, equity is known as "net position" or "net assets". Origins The term "equity" describes this type of ownership in English because it was regulated through the system of equity law that developed in England during the Late Middle Ages to meet the growing demands of commercial activity. While the older common law courts dealt with questions of property title, eq ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Tradability
Tradability is the property of a good or service that can be sold in another location distant from where it was produced. A good that is not tradable is called non-tradable. Different goods have differing levels of tradability: the higher the cost of transportation and the shorter the shelf life, the less tradable a good is. Prepared food, for example, is not generally considered a tradable good; it will be sold in the city in which it is produced and does not directly compete with other cities' prepared foods. Some non-commodities and services such as haircuts and massages are also obviously non-tradable. However, in recent years even pure services such as education can be regarded as tradable due to advancements in information and communications technology. Price equalization Perfectly tradable goods, like shares of stock, are subject to the law of one price: they should cost the same amount wherever they are bought. This law requires an efficient market. Any discrepan ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
International Macroeconomics
International finance (also referred to as international monetary economics or international macroeconomics) is the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries. International finance examines the dynamics of the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investment, and how these topics relate to international trade. Sometimes referred to as multinational finance, international finance is additionally concerned with matters of international financial management. Investors and multinational corporations must assess and manage international risks such as political risk and foreign exchange risk, including transaction exposure, economic exposure, and translation exposure. Some examples of key concepts within international finance are the Mundell–Fleming model, the optimum currency area theory, purchasing power parity, interest rate p ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
International Finance
International finance (also referred to as international monetary economics or international macroeconomics) is the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries. International finance examines the dynamics of the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investment, and how these topics relate to international trade. Sometimes referred to as multinational finance, international finance is additionally concerned with matters of international financial management. Investors and multinational corporations must assess and manage international risks such as political risk and foreign exchange risk, including transaction exposure, economic exposure, and translation exposure. Some examples of key concepts within international finance are the Mundell–Fleming model, the optimum currency area theory, purchasing power parity, interest rate parit ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |