Jordi Mondria

Portfolio choice, attention allocation, and price comovement

This paper models the attention allocation of portfolio investors. Investors choose the composition of their information subject to an information flow constraint. Given their expected investment strategy in the next period, which is to hold a diversified portfolio, in equilibrium investors choose to observe one linear combination of asset payoffs as a private signal. When investors use this private signal to update information about two assets, changes in one asset affect both asset prices and may lead to asset price comovement. The model also has implications for the transmission of volatility shocks between two assets.

The determinants of international investment and attention allocation: Using internet search query data

This paper explores the joint determination of home bias and attention allocation. We overcome the typical challenge associated with evaluating attention allocation theories by using a new internet search query dataset to measure how much information investors decide to process. Employing an instrumental variables approach, we find empirical evidence of a two-way causality between home bias and attention. Our estimates suggest that if all countries were to receive the same level of attention as the U.S., then the average home bias by U.S. investors would fall from 85.2% to 57.3%.

The Puzzling Evolution of the Home Bias, Information Processing and Financial Openness

This paper presents a rational expectations model of asset prices with rationally inattentive investors that, unlike previous papers, can explain both the substantial amount of equity wealth invested domestically and the puzzling time series behavior of the home bias - an initial plateau before 1985, then a decrease until 1994 followed by stabilization on another plateau. When there is a financial liberalization, investors exploit past information to predict current asset payoffs. The resulting endogenous local information advantage generates a gradual decrease of the home bias until its steady state. In the long run, the home bias remains large due to the interaction of the optimal attention allocation with the optimal portfolio choice. Using measures for information capacity, informational advantages and ?financial openness as explanatory variables, we are able to explain at least 46.8% of the variation of the home bias for 19 developed countries from 1988 until 2004. Our estimates show that both variables are significant, with home bias decreasing with financial openness and increasing with information capacity, as predicted by our model.

Imperfect financial integration and asymmetric information: competing explanations of the home bias puzzle?

This paper shows that imperfect financial integration and informational asymmetries are not competing theories but rather complementary ideas to a single explanation of the home bias puzzle. We develop a rational expectations model of asset prices with investors that face informational constraints and find that informational advantages arise endogenously as a response to small financial frictions. We also present empirical evidence that (i) international financial frictions are correlated to observed patterns of US investors’ attention and that (ii) the attention US investors allocate to foreign stocks helps explain home bias towards those countries, even after controlling for financial integration levels. Ce memoire montre que l’integration financiere imparfaite et l’information asymetrique ne sont pas des theories concurrentes mais plutot des idees complementaires a l’interieur d’une resolution unifiee de l’enigme du biais en faveur du marche domestique. On developpe un modele d’anticipations rationnelles des prix des actifs face a des investisseurs confrontes a des contraintes informationnelles, et on decouvre que les avantages informationnels emergent de maniere endogene en reponse a de petites frictions financieres. On montre empiriquement que (i) les frictions financieres internationales sont co‐reliees aux patterns d’attention observes des investisseurs des Etats‐Unis, et que (ii) l’attention portee par les investisseurs americains aux marches financiers etrangers aide a expliquer le biais en faveur du marche domestique de ces pays, meme apres avoir pris en compte les niveaux d’integration financiere.

Imperfect Financial Integration and Asymmetric Information: Competing Explanations of the Home Bias Puzzle? (Intégration Financière Imparfaite Et Information Asymétrique: Explications Concurrentes De L’Énigme Du Biais En Faveur Du Marché Domestique?)

This paper shows that imperfect financial integration and informational asymmetries are not competing theories but rather complementary ideas to a single explanation of the home bias puzzle. We develop a rational expectations model of asset prices with investors that face informational constraints and find that informational advantages arise endogenously as a response to small financial frictions. We also present empirical evidence that (i) international financial frictions are correlated to observed patterns of US investors’ attention and that (ii) the attention US investors allocate to foreign stocks helps explain home bias towards those countries, even after controlling for financial integration levels. Ce memoire montre que l’integration financiere imparfaite et l’information asymetrique ne sont pas des theories concurrentes mais plutot des idees complementaires a l’interieur d’une resolution unifiee de l’enigme du biais en faveur du marche domestique. On developpe un modele d’anticipations rationnelles des prix des actifs face a des investisseurs confrontes a des contraintes informationnelles, et on decouvre que les avantages informationnels emergent de maniere endogene en reponse a de petites frictions financieres. On montre empiriquement que (i) les frictions financieres internationales sont co‐reliees aux patterns d’attention observes des investisseurs des Etats‐Unis, et que (ii) l’attention portee par les investisseurs americains aux marches financiers etrangers aide a expliquer le biais en faveur du marche domestique de ces pays, meme apres avoir pris en compte les niveaux d’integration financiere.