Issues in Business Management and Economics
Vol.1 (2), pp. 037-046, June 2013
Article ID BM04, 10 pages
Copyright © 2014 Author(s) retain the copyright of this article. Author(s) agree that this article remain permanently open access under the terms of the Creative Commons Attribution License 3.0 International License
Information costs and its effects on international portfolio choice
Accepted 3 March,2013
Ali Bentabet* and Maya Fetni
Department of Financial Sciences Universit of Badji Mokhtar, Annaba, Algeria.
*Corresponding author E-mail: bentabetmg(at)yahoo.fr
This paper presents a model of international asset pricing in the presence of shadow costs of incomplete information. The model shows that the exchange rate risk is priced in an international setting. The home bias equity is explained by the shadow costs of incomplete information. These costs are defined in the spirit of Merton model of capital market equilibrium with incomplete information. The model supports the empirical findings in Kang and Stulz and Dahlquist and Robertsson.
Key words: Portfolio choice, international financial markets, information costs.
JEL Classification: G15, G11.