Article ID Journal Published Year Pages File Type
5070018 Finance Research Letters 2006 8 Pages PDF
Abstract

This paper explores how the scarcity of cognitive resources affects portfolio decisions. I consider an economy where investors allocate mental effort to learn about the mean return of a number of assets, by retrieving information from a stock of memories. As a result, parameter uncertainty arises endogenously. I characterize the optimal division of attention and the optimal portfolios and I show that limited attention might provide interesting insight into the equity home bias puzzle.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
,