The Determinants Of International Portfolio Holding And Home Bias
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| Author | : Shujing Li |
| Publisher | : International Monetary Fund |
| Total Pages | : 32 |
| Release | : 2004-02 |
| Genre | : Business & Economics |
| ISBN | : |
Despite the liberalization of foreign portfolio investment around the globe since the early 1980s, the home-bias phenomenon is still found to exist. Using a relatively new IMF survey dataset of cross-border equity holdings, this paper tests new structural equations from a consumption-based asset-pricing model on international portfolio holdings. Using of stock data allows us to provide new and clear-cut evidence on the determinants of international portfolio holdings. The empirical results show that an augmented gravity model performs remarkably well. The results indicate that market size, transaction cost, and information asymmetry are major determinants of cross-border portfolio choice. These findings shed light on alternative theories of international portfolio holdings, especially on the transaction and information cost-based explanations of home bias.
| Author | : H. Farqee |
| Publisher | : |
| Total Pages | : |
| Release | : 2004 |
| Genre | : |
| ISBN | : |
| Author | : |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2004 |
| Genre | : Investments, Foreign |
| ISBN | : |
| Author | : Shujing Li |
| Publisher | : |
| Total Pages | : 35 |
| Release | : 2005 |
| Genre | : |
| ISBN | : |
This paper employs a unique cross-border equity position dataset from the IMF to investigate the determinants of international portfolio holdings in a wide range of countries. It is observed that, besides the home bias phenomenon, there is considerable geographical bias in the cross-border portfolio holdings - investors tend to hold more securities in countries closer to them in distance. We estimate that if the distance between two counties doubles the cross-border equity holdings are reduced by 68%. This paper first derives structural equations from a consumption-based asset pricing model and then applies them to analyze the effect of distance, information and transaction costs on international portfolio holdings. The results indicate that, by explicitly introducing information and transaction costs into the model, the heterogeneity of cross-border holdings and a great part of the home bias puzzle can be explained.
| Author | : Hamid Faruqee |
| Publisher | : |
| Total Pages | : |
| Release | : 2004 |
| Genre | : |
| ISBN | : |
| Author | : Kavous Ardalan |
| Publisher | : Routledge |
| Total Pages | : 243 |
| Release | : 2019-05-17 |
| Genre | : Business & Economics |
| ISBN | : 1000001431 |
This book provides a comprehensive and critical analysis of research outcomes on the equity home bias puzzle – that people overinvest in domestic stocks relative to the theoretically optimal investment portfolio. It introduces place attachment – the bonding that occurs between individuals and their meaningful environments – as a new explanation for equity home bias, and presents a philosophically multi-paradigmatic view of place attachment. For the first time, a comprehensive and up-to-date review of the extant literature is provided, demonstrating that place attachment is a contributing factor to 22 different topics in which variations of home bias are present. The author also analyses the social-psychological underpinnings of place attachment, and considers the effect of multi-culturalism on the future of equity home bias. The book’s unique approach discusses the issues in conceptual terms rather than through data and statistical methods. This multi- and inter-disciplinary book is an invaluable resource for graduate students and researchers interested in economics, finance, philosophy, and/or methodology, introducing them to a new line of research.
| Author | : Xuan Vinh Vo |
| Publisher | : |
| Total Pages | : 34 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Over the past decades, there is an increased trend in the international financial integration as countries are removing and relaxing controls on cross-border investment. Capital can flow easily to the destination that offers higher returns as the results of decreasing obstacles to international investment. However, despite well documented gains from international diversification, investors continue to have a strong preference for domestic assets. This paper characterizes the salient nature of the composition of the Australian equity portfolio investment. In addition, the paper investigates the determinants of the Australian investors' home bias in equity portfolio investment. Employing the disaggregated data for the holding of Australian investors abroad from the Coordinated Portfolio Investment Survey (CPIS) conducted by IMF for the year 1997, 2001, 2002, 2003, 2004 and 2005, we provide an insight into the causes of the home bias puzzle by empirically analysing the role of explicit barriers to international investment (capital controls and transaction costs) and implicit barriers (governance and information asymmetries).
| Author | : Ian Cooper |
| Publisher | : |
| Total Pages | : 133 |
| Release | : 2013 |
| Genre | : International finance |
| ISBN | : 9781601987631 |
Home bias - the empirical phenomenon that investors assign anomalously high weights to their own domestic assets - has puzzled academics for decades: financial theory predicts that an internationally well diversified portfolio of stocks and short-term bonds can reduce risk significantly without affecting expected return. Although the globalization of international equity markets has increased international investments, equity portfolios remain severely home biased today, and no single explanation seems to solve the puzzle completely. In this paper, we first provide a thorough description of the equity home bias phenomenon by defining, discussing, and applying the competing measures and presenting some estimates of the costs of under-diversification. Second, we evaluate the explanations for the equity home bias proposed in the literature such as information asymmetries, behavioral aspects, barriers to foreign investment, and governance issues, and conclude that each explanation on its own falls short, suggesting that the equity home bias probably reflects a combination of factors. Lastly, we review the implications of international under-diversification for portfolio formation and the cost of capital of companies.
| Author | : Piet Sercu |
| Publisher | : |
| Total Pages | : |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
| Author | : Anders Karlsson |
| Publisher | : |
| Total Pages | : 37 |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
A striking feature of international portfolio investment is the extent to which equity portfolios are concentrated in the domestic market of the investor. Many authors have tried to explain this home bias, but so far, this literature has not succeeded in providing a generally accepted explanation for it. Also, there are no previous results regarding home bias on an individual level, i.e. what characterises an individual who show a relatively large reluctance towards international diversification and investments. The purpose of this study is to investigate whether there is a home bias in the portfolios of mutual funds, which are formed as a part of the pension plan in Sweden. While controlling for several reasons for home bias which are found in the previous research, as e.g. transactions costs and risk level of investments, this study analyses the nature of portfolio allocation and the home bias on an individual investor basis. A multinomial logit model is formulated to estimate the likelihood of home bias, where demographical features of the individuals are used as explanatory variables. The results show several significant, statistically and economically, relationships between individual characteristics and the likelihood of home bias. In particular, age, gender, net wealth, occupation and familiarity with risky investments are important. The type of individual with the highest likelihood of home bias is identified as a not so wealthy older man, who works for the government and holds no other risky assets.
