Piet Sercu

The Equity Home Bias Puzzle: A Survey puts into perspective one of the strongest and most persistent empirical phenomena in finance: equity home bias. The authors not only provide a thorough review of the competing Measures of home bias and the explanations for the equity home bias proposed in the current literature, but also lay out the implications of international under-diversification for portfolio formation and the cost of capital of companies. The Equity Home Bias Puzzle: A Survey is organized as follows. After an introduction, Section 1 defines the equity home bias puzzle and explains why it is important. Section 2 reviews the two main methods used to quantify equity home bias, the positive and normative approaches, and shows how alternative home bias Measures can be constructed using variations or combinations of these two methods. In Section 3 the authors explain the economic significance of under-diversification by estimating the total implied discount and then go on to review the various explanations for equity home bias-ultimately concluding that each explanation on its own is not sufficient, suggesting, in Section 4, that equity home bias reflects a combination of factors. Section 5 lays out the implications of home bias for investment and corporate finance and Section 6 concludes that no version of standard portfolio theory alone has been able to explain it.

International Finance presents the corporate uses of international financial markets to upper undergraduate and graduate students of business finance and financial economics. Combining practical knowledge, up-to-date theories, and real-world applications, this textbook explores issues of valuation, funding, and risk management. International Finance shows how theoretical applications can be brought into managerial practice. The text includes an extensive introduction followed by three main sections: currency markets; exchange risk, exposure, and risk management; and long-term international funding and direct investment. Each section begins with a short case study, and each of the sections' chapters concludes with a CFO summary, examining how a hypothetical chief financial officer might apply topics to a managerial setting. The book also contains end-of-chapter questions to help students grasp the material presented. Focusing on international markets and multinational corporate finance, International Finance is the go-to resource for students seeking a complete understanding of the field. * Rigorous focus on international financial markets and corporate finance concepts * An up-to-date and practice-oriented approach * Strong real-world examples and applications * Comprehensive look at valuation, funding, and risk management * Introductory case studies and "CFO summaries," and end-of-chapter quiz questions * Solutions to the quiz questions are available online

Recent years have seen a substantial increase in the volatility of exchange rates. This trend has prompted economists and finance analysts to question if the observed behaviour of exchange rates is consistent with a rational model. Does that volatility hinder trade? What are financial markets' effects on countries' investment decisions, and how would changes in fixed exchange rates affect growth and welfare? What are the requirements to make such changes feasible? Professors Sercu and Uppal examine these issues in the context of dynamic general equilibrium models, explicitly considering the role of financial markets while allowing for commodity markets to be segmented across countries. They show that the theoretical models for exchange rates in this context are quite different from those put forth by monetary theorists and proponents of purchasing power parity arguments.

Recent years have seen a substantial increase in the volatility of exchange rates. This trend has prompted economists and finance analysts to question if the observed behavior of exchange rates is consistent with a rational model. Does that volatility hinder trade? What are financial markets’ effects on countries’ investment decisions, and how would changes in fixed exchange rates affect growth and welfare? What are the requirements to make such changes feasible? Professors Sercu and Uppal examine these issues in the context of dynamic general equilibrium models, explicitly considering the role of financial markets while allowing for commodity markets to be segmented across countries. They show that the theoretical models for exchange rates in this context are quite different from those put forth by monetary theorists and proponents of purchasing power parity arguments.