International asset allocation for incompletely-informed investors

Yin Feng Gau, Mingshu Hua, Wen Lin Wu

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


This study explains the home bias puzzle by examining the effect of information quality on the asset allocation decisions. Our calibration results based on MSCI data indicate that in order to hedge for the changing quality of the information, when updating their estimates of expected returns of foreign assets, those agents who are partially informed and relatively more conservative will tend to hold fewer foreign assets than completely-informed agents. Furthermore, the magnitude of home bias in the portfolio of partially-informed agents decreases with the precision of their estimates and the instantaneous correlation between the returns of the home and foreign assets.

Original languageEnglish
Pages (from-to)422-447
Number of pages26
JournalJournal of Financial Markets
Issue number4
StatePublished - Nov 2010


  • Asset allocation
  • Home bias
  • Incomplete information
  • Kalman-Bucy filter
  • Learning


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