Malmendier, UlrikePouzo, DemianVanasco, Victoria2020-07-242020-07-242020Malmendier U, Pouzo D, Vanasco V. Investor experiences and international capital flows. Journal of International Economics. 2020 May;124:1-19. DOI: 10.1016/j.jinteco.2020.1033020976-0792http://hdl.handle.net/10230/45188We propose a novel explanation for classic international macro puzzles regarding capital flows and portfolio investment, which builds on modern macro-finance models of experience-based belief formation. Individual experiences of past macroeconomic outcomes have been shown to exert a long-lasting influence on beliefs about future realizations, and to explain domestic stock-market investment. We argue that experience effects can explain the tendency of investors to hold an over proportional fraction of their equity wealth in domestic stocks (home bias), to invest in domestic equity markets in periods of domestic crises (retrenchment), and to withdraw capital from foreign equity markets in periods of foreign crises (fickleness). Experience-based learning generates additional implications regarding the strength of these puzzles in times of higher or lower economic activity and depending on the demographic composition of market participants. We test and confirm these predictions in the data.application/pdfeng© 2020 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).info:eu-repo/semantics/articlehttp://dx.doi.org/10.1016/j.jinteco.2020.103302Experience effectsLearningAsset pricesPortfolio choiceDemographicsinfo:eu-repo/semantics/openAccess