Common factors, information, and holdings dispersion

Patrice Fontaine; Sonia Jimenez-Garces; Mark Seasholes

doi:10.1093/rof/rfx030

Common factors, information, and holdings dispersion

Patrice Fontaine, Sonia Jimenez-Garces, Mark Seasholes

Finance

Research output: Contribution to journal › Article › peer-review

Abstract

We derive closed-form solutions for asset prices and portfolio holdings when agents have asset-specific information and/or information about common components that affect many assets. Our solutions are general, encompass existing information structures, and are used to analyze new structures. A given investor's portfolio can exhibit highly disperse holdings-e.g., portfolio weights may vary significantly from market capitalization weights. Our model also generates large ranges of asset prices due to information asymmetries. We help explain why US investors (e.g.) may underweight German stocks (e.g.) on average, but overweight a particular German stock relative to its market capitalization weight.

Original language	English (US)
Pages (from-to)	1441-1467
Number of pages	27
Journal	Review of Finance
Volume	22
Issue number	4
DOIs	https://doi.org/10.1093/rof/rfx030
State	Published - Jul 1 2018

Keywords

Holdings dispersion
Home bias
Information economics

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

Access to Document

10.1093/rof/rfx030

Cite this

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title = "Common factors, information, and holdings dispersion",

abstract = "We derive closed-form solutions for asset prices and portfolio holdings when agents have asset-specific information and/or information about common components that affect many assets. Our solutions are general, encompass existing information structures, and are used to analyze new structures. A given investor's portfolio can exhibit highly disperse holdings-e.g., portfolio weights may vary significantly from market capitalization weights. Our model also generates large ranges of asset prices due to information asymmetries. We help explain why US investors (e.g.) may underweight German stocks (e.g.) on average, but overweight a particular German stock relative to its market capitalization weight.",

keywords = "Holdings dispersion, Home bias, Information economics",

author = "Patrice Fontaine and Sonia Jimenez-Garces and Mark Seasholes",

note = "Funding Information: * We are especially grateful to Radu Burlacu for his economic insights and technical help. We also thank Magnus Dahlquist, Harald Hau, Soeren Hvidkjaer, Jordi Mondria, Bruno Solnik, and Ollivier Taramasco for helpful comments and suggestions as well as seminar participants at the 2011 Asian Finance Association Meetings, 2009 AFA Meetings (San Francisco), 2008 Cerag-Ensimag-Isfa joint seminar (Lyon), 2007 AFFI Conference (Paris), 2007 ASAP Conference (London), ESSEC (Paris), HEC (Paris), Nanyang Technical University (Singapore), Tilburg University, and University of Rotterdam. Fontaine, and Jimenez-Garc{\`e}s acknowledge support from CNRS and R{\'e}gion Rh{\^o}ne-Alpes. Publisher Copyright: {\textcopyright} The Authors 2017.",

year = "2018",

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doi = "10.1093/rof/rfx030",

language = "English (US)",

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AU - Fontaine, Patrice

AU - Jimenez-Garces, Sonia

AU - Seasholes, Mark

N1 - Funding Information: * We are especially grateful to Radu Burlacu for his economic insights and technical help. We also thank Magnus Dahlquist, Harald Hau, Soeren Hvidkjaer, Jordi Mondria, Bruno Solnik, and Ollivier Taramasco for helpful comments and suggestions as well as seminar participants at the 2011 Asian Finance Association Meetings, 2009 AFA Meetings (San Francisco), 2008 Cerag-Ensimag-Isfa joint seminar (Lyon), 2007 AFFI Conference (Paris), 2007 ASAP Conference (London), ESSEC (Paris), HEC (Paris), Nanyang Technical University (Singapore), Tilburg University, and University of Rotterdam. Fontaine, and Jimenez-Garcès acknowledge support from CNRS and Région Rhône-Alpes. Publisher Copyright: © The Authors 2017.

PY - 2018/7/1

Y1 - 2018/7/1

N2 - We derive closed-form solutions for asset prices and portfolio holdings when agents have asset-specific information and/or information about common components that affect many assets. Our solutions are general, encompass existing information structures, and are used to analyze new structures. A given investor's portfolio can exhibit highly disperse holdings-e.g., portfolio weights may vary significantly from market capitalization weights. Our model also generates large ranges of asset prices due to information asymmetries. We help explain why US investors (e.g.) may underweight German stocks (e.g.) on average, but overweight a particular German stock relative to its market capitalization weight.

AB - We derive closed-form solutions for asset prices and portfolio holdings when agents have asset-specific information and/or information about common components that affect many assets. Our solutions are general, encompass existing information structures, and are used to analyze new structures. A given investor's portfolio can exhibit highly disperse holdings-e.g., portfolio weights may vary significantly from market capitalization weights. Our model also generates large ranges of asset prices due to information asymmetries. We help explain why US investors (e.g.) may underweight German stocks (e.g.) on average, but overweight a particular German stock relative to its market capitalization weight.

KW - Holdings dispersion

KW - Home bias

KW - Information economics

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Common factors, information, and holdings dispersion

Abstract

Keywords

ASJC Scopus subject areas

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