HOME BIAS: EVIDENCE FROM THE STOCK EXCHANGE
AbstractThis paper deals with issues connected to the home bias, which is a tendency of investors to keep more domestic assets versus foreign ones. We use annual data on the value of share trading of 68 stock exchanges in 68 countries for the period of 2003-2015 to find out if home bias exists given domestic and foreign shares are traded under the same regulatory framework, with the same transaction costs and rules for information availability applied; and if it does, then what factors are responsible for it. We find that the home bias increases in periods of crisis and becomes lower in periods of relative stability. In addition, home bias tends to be smaller in countries with better control of corruption and that are more open to investments. A Hausman-Taylor estimation confirms this result and suggests that countries with better institutional environments tend to have smaller home bias. Moreover, countries that are more open to investments have more foreign companies listed on their stock exchanges.
Ahearne, A. G., Griever, W. L., & Warnock, F. E. (2004). Information costs and home bias: an analysis of US holdings of foreign equities. Journal of international economics, 62(2), 313-336.
Aidt, T. S. (2003). Economic analysis of corruption: a survey. The Economic Journal, 113(491), F632-F652.
Anderson, C. W., Fedenia, M., Hirschey, M., & Skiba, H. (2011). Cultural influences on home bias and international diversification by institutional investors. Journal of Banking & Finance, 35(4), 916-934.
Bellos, S., & Subasat, T. (2012). Governance and foreign direct investment: A panel gravity model approach. International Review of Applied Economics, 26(3), 303-328.
Bellos, S., & Subasat, T. (2013). Governance and foreign direct investment in Latin America: A panel gravity model approach. Latin American Journal of Economics, 50(1), 107-131.
Black, F. (1974). International Capital Market Equilibrium with Investment Barriers. Journal of Financial Economics, I (4), 337-352.
Coeurdacier, N. (2009). Do trade costs in goods market lead to home bias in equities?. Journal of international Economics, 77(1), 86-100.
Coeurdacier, N., & Rey, H. (2013). Home bias in open economy financial macroeconomics. Journal of Economic Literature, 51(1), 63-115.
Cooper, I., & Kaplanis, E. (1994). Home bias in equity portfolios, inflation hedging, and international capital market equilibrium. Review of Financial Studies, 7(1), 45-60.
Coval, J. D., & Moskowitz, T. J. (1999). Home bias at home: Local equity preference in domestic portfolios. The Journal of Finance, 54(6), 2045-2073.
Covrig, V. M., Defond, M. L., & Hung, M. (2007). Home bias, foreign mutual fund holdings, and the voluntary adoption of international accounting standards. Journal of Accounting Research, 45(1), 41-70.
Fidora, M., Fratzscher, M., & Thimann, C. (2007). Home bias in global bond and equity markets: the role of real exchange rate volatility. Journal of international Money and Finance, 26(4), 631-655.
Forbes, K. J. (2010). Why do foreigners invest in the United States?. Journal of International Economics, 80(1), 3-21.
French, K.R., Poterba, J.M. (1991). Investor Diversification and International Equity Markets. American Economic Review, 81(2), 222-226.
Hamberg, M., Mavruk, T., & Sjögren, S. (2013). Investment allocation decisions, home bias and the mandatory IFRS adoption. Journal of International Money and Finance, 36, 107-130.
Hofstede, G., Hofstede, G.J., & Minkov, M. (2010). Cultures and Organizations: Software of the Mind. Revised and expanded 3rd Edition. New York: McGraw-Hill USA.
Kim, H., Cho, S. H., & Kim, Y. (2015). Home bias, risk differential, and cultural spatial spillover effects. Journal of International Money and Finance, 51, 114-136.
Lane, P. R., & Milesi-Ferretti, G. M. (2008). International investment patterns. The Review of Economics and Statistics, 90(3), 538-549.
Lau, S. T., Ng, L., & Zhang, B. (2010). The world price of home bias. Journal of Financial Economics, 97(2), 191-217.
Levy, H., & Levy, M. (2014). The home bias is here to stay. Journal of Banking & Finance, 47, 29-40.
Lui, F. T. (1985). An equilibrium queuing model of bribery. Journal of Political Economy, 93(4), 760-781.
Maier, M., & Scholz, H. (2016). A Return-Based Approach to Identify the Home Bias of European Equity Funds. Available at SSRN 2738035.
Mishra, A. V. (2015). Measures of equity home bias puzzle. Journal of Empirical Finance, 34, 293-312.
Morse, A., & Shive, S. (2011). Patriotism in your portfolio. Journal of financial markets, 14(2), 411-440.
Obstfeld, M., & Rogoff, K. (2001). The six major puzzles in international macroeconomics: is there a common cause?. In NBER Macroeconomics Annual 2000, Volume 15 (pp. 339-412). MIT press.
Othmani, S., Saanoun, I. B., Garali, W., & Arab, M. B. (2014). Determinants of Home Bias Puzzle in European Countries. International Review of Management and Business Research, 3(1), 182.
Portes, R., & Rey, H. (2005). The determinants of cross-border equity flows. Journal of international Economics, 65(2), 269-296.
Quinn, D. P., & Voth, H. J. (2008). A century of global equity market correlations. The American Economic Review, 98(2), 535-540.
Schoenmaker, D., & Bosch, T. (2008). Is the home bias in equities and bonds declining in Europe?. Investment Management and Financial Innovations, 5, 90-102.
Shinagawa, Y. (2014). Determinants of Financial Market Spillovers: The Role of Portfolio Diversification, Trade, Home Bias, and Concentration (No. 14/187). International Monetary Fund.
Stulz, R. M. (1981). On the effects of barriers to international investment. The Journal of Finance, 36(4), 923-934.
Wang, J. (2010). Home bias, exchange rate disconnect, and optimal exchange rate policy. Journal of International Money and Finance, 29(1), 55-78.
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License (Creative Commons Attribution License 3.0 - CC BY 3.0) that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
email@example.com, www.iseic.cz, ojs.journals.cz