Vo, Xuan Vinh (2008): The determinants of home bias puzzle in equity portfolio investment in Australia.
This is the latest version of this item.
Download (161Kb) | Preview
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).
|Item Type:||MPRA Paper|
|Original Title:||The determinants of home bias puzzle in equity portfolio investment in Australia|
|English Title:||The determinants of home bias puzzle in equity portfolio investment in Australia|
|Keywords:||home bias; portfolio equity investment; transaction costs; volatility; liquidity|
|Subjects:||F - International Economics > F1 - Trade > F15 - Economic Integration
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment; Capacity
E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
|Depositing User:||Xuan Vinh Vo|
|Date Deposited:||25. Nov 2010 04:13|
|Last Modified:||12. Feb 2013 17:00|
Adler, M. & Dumas, B. 1983, 'International Portfolio Choice and Corporation Finance: A Synthesis', Journal of Finance, vol. 38, no. 3, pp. 925-984.
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, vol. 62, pp. 313-336.
Baele, L., Pungulescu, C. & Horst, J.T. 2006, 'Model Uncertainty, Financial Markets Integration and the Home Bias Puzzle', Journal of International Money and Finance, vol. 26, no. 4, pp. 606-630.
Bekaert, G. & Harvey, C.R. 2000, 'Foreign speculators and emerging equity markets', Journal of Finance, vol. 55, no. 2, pp. 565-613.
Black, F. 1974, 'International capital market equilibrium with investment barriers', Journal of Financial Economics, vol. 1, pp. 337–352.
Bohn, H. & Tesar, L.L. 1996, 'U.S. Equity Investment in Foreign Markets: Portfolio Rebalancing or Return Chasing?', American Economic Review, vol. 86, no. 2, pp. 77-81.
Brennan, M.J. & Cao, H.H. 1997, 'International portfolio investment flows', Journal of Finance, vol. 52, no. 5, pp. 1851–1880.
Cai, F. & Warnock, F.E. 2004, 'International diversification at home and abroad', International Finance Discussion Papers - Board of Governors of the Federal Reserve System (U.S.), vol. 793.
Cooper, I. & Kaplanis, E. 1994a, 'Home bias in equity portfolios, inflation hedging, and international capital market equilibrium', Review of Financial Studies, vol. 7, pp. 45–60.
Cooper, I. & Kaplanis, E. 1994b, 'The Implications of the Home Bias in Equity Portfolios', Business Strategy Review, vol. 5, no. 2, pp. 41-53.
Cooper, I. & Kaplanis, E. 1994c, 'What explains the home bias in portfolio investment?', Review of Financial Studies, vol. 7, pp. 45-60.
Cooper, I. & Lessard, D.R. 1981, 'International Capital Market Equilibrium with Deadweight Costs to Foreign Investment'.
Coval, J.D. & Moskowitz, T.J. 1999, 'Home bias at home: Local equity preference in domestic portfolios', Journal of Finance, vol. 54, pp. 2045–2073.
Dahlquist, M., Pinkowitz, L., Stulz, R. & Williamson, R. 2003, 'Corporate Governance and Home Bias', Journal of Financial and Quantitative Analysis, vol. 38, no. 1, pp. 135-157.
Dahlquist, M. & Robertsson, G. 2001, 'Direct foreign ownership, institutional investors, and firm characteristics', Journal of Financial Economics, vol. 59, pp. 413-440.
Daude, C. & Fratzscher, M. 2006, 'The pecking order of international financial integration', European Central Bank Working Paper No. 590.
De Santis, G. & Gerard, B. 1997, 'International Asset Pricing and Portfolio Diversification with Time-Varying Risk', Journal of Finance, vol. 52, no. 5, pp. 1881-1912.
Domowitz, I., Glen, J. & Madhavan, A. 2001, 'Liquidity, Volatility, and Equity Trading Costs Across Countries and Over Time', International Finance, vol. 4, no. 2, pp. 221-255.
Eichengreen, B. 2001, 'Capital account liberalization: What do cross-country studies tell us?', The World Bank Economic Review, vol. 15, no. 3, pp. 341-366.
Eldor, R., Pines, D. & Schwartz, A. 1988, 'Home asset preference and productivity shocks', Journal of International Economics, vol. 25, no. 1-2, pp. 165-176.
Engel, C. 2000, 'Comments on Obstfeld and Rogoff’s "The six major puzzles in international macroeconomics: Is there a common cause?"', in B.S. Bernanke & K.S. Rogoff (eds), NBER Macroeconomics Annual.
Errunza, V. & Losq, E. 1981, 'International asset pricing under mild segmentation: Theory and test', Journal of Finance, vol. 40, pp. 105–124.
Fama, E.F. & French, K.R. 1998, 'Value versus growth: the international evidence', Journal of Finance, vol. 53, pp. 1975–1999.
Fidora, M., Fratzsc, 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, vol. 26, no. 4, pp. 631-655.
Frankel, J.A. & Schmukler, S.L. 1996, 'Country Fund Discounts, Asymmetric Information and the Mexican Crisis of 1994: Did Local Residents Turn Pessimistic Before International Investors?', NBER Working Paper Series, no. 5714.
Frankel, J.A. & Schmukler, S.L. 2000, 'Country Funds and Asymmetric Information', International Journal of Finance & Economics, vol. 5, no. 3, pp. 177-195.
French, K.R. & Poterba, J.M. 1991, 'Investor diversification and international equity markets', American Economic Review, vol. 81, pp. 222–226.
Gehrig, T. 1993, 'An Information Based Explanation of the Domestic Bias in International Equity Investment', Scandinavian Journal of Economics, vol. 95, no. 1, pp. 97-109.
Glassman, D.A. & Riddick, L.A. 2001, 'What causes home asset bias and how should it be measured?', Journal of Empirical Finance, vol. 8, pp. 35–54.
Grauer, R.R. & Hakansson, N.H. 1987, 'Gains from International Diversification: 1968-85 Returns on Portfolios of Stocks and Bonds', Journal of Finance, vol. 42, no. 3, pp. 721-739.
Grinblatt, M. & Keloharju, M. 2000, 'The investment behavior, and performance of various investor types: A study of finland’s unique data set', Journal of Financial Economics, vol. 55, pp. 43–67.
Grubel, H.G. 1968, 'Internationally Diversified Portfolios: Welfare Gains and Capital Flows', American Economic Review, vol. 58, no. 5, pp. 1299-1314.
Hasan, I. & Simaan, Y. 2000, 'A Rational Explanation for home country bias', Journal of International Money and Finance, vol. 19, pp. 331-361.
Huberman, G. 2001, 'Familiarity breeds investment', Review of Financial Studies, vol. 14, pp. 659–680.
Hummels, D., Ishii, J. & Yi, K.-M. 2001, 'The nature and growth of vertical specialization in world trade', Journal of International Economics, vol. 54, no. 1, pp. 75-96.
Kang, J.-K. & Stulz, R. 1997, 'Why is There Home Bias? An Analysis of Foreign Equity Ownership in Japan', Journal of Financial Economics, vol. 46, no. 1, pp. 3-28.
Karolyi, G.A. & Stulz, R.M. 2002, 'Are financial assets priced locally or globally?', Working Paper 8994, NBER.
Kaufmann, D., Kraay, A. & Zoido-Lobaton, P. 2003, 'Governance Matters III: Governance Indicators for 1996-2002', The World Bank.
Kim, W. & Wei, S.-J. 2002, 'Foreign Portfolio Investors Before and During a Crisis', Journal of International Economics, vol. 56, pp. 77-96.
Lane, P.R. & Milesi-Ferretti, G.M. 2003, 'International Financial Integration', Institute for International Integration Studies Discussion Paper.
Lewis, K.K. 1999, 'Trying to explain home bias in equities and consumption', Journal of Economic Literature, vol. 37, pp. 571–608.
Lintner, J. 1965, 'The valuation of risky assets and the selection of risky investment in stock portfolio and capital budgets', Review of Economics and Statistics, vol. 47, pp. 103-124.
Martin, P. & Rey, H. 2004, 'Financial Super-Markets: Size Matters for Asset Trade', Journal of International Economics, vol. 64, no. 2, pp. 335-361.
Merton, R. 1987, 'A simple model of capital market equilibrium with incomplete information', Journal of Finance, vol. 42, pp. 483-510.
Miniane, J. 2004, 'A New Set of Measures on Capital Account Restrictions', IMF Staff Papers, vol. 51, no. 2, pp. 276-308.
Obstfeld, M. & Rogoff, K. 2000, 'The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?', NBER Working Paper Series, vol. 7777.
Portes, R. & Rey, H. 1999, 'The Determinants of Cross-Border Equity Flows', Journal of International Economics, vol. 65, no. 2, pp. 269-296.
Portes, R. & Rey, H. 2005, 'The Determinants of Cross-Border Equity Flows', Journal of International Economics, vol. 65, no. 2, pp. 269-296.
Sharpe, W. 1964, 'Capital asset prices: A theory of market equilibrium under the condition of risk', Journal of Finance, vol. 19, pp. 425-442.
Shiller, R.J., Kon-Ya, F. & Tsutsui, Y. 1991, 'Investor behavior in the October 1987 stock market crash: The case of Japan', Journal of the Japanese and International Economics vol. 5, pp. 1-13.
Shiller, R.J., Kon–Ya, F. & Tsutsui, Y. 1996, 'Why did the Nikkei crash? Expanding the scope of expectations data collections', Review of Economics and Statistics, vol. 78, no. 1, pp. 156-164.
Solnik, B. 1983, 'International arbitrage pricing theory', Journal of Finance, vol. 38, pp. 500-524.
Solnik, B.H. 1974, 'An equilibrium model of the international capital market', Journal of Economic Theory, vol. 8, no. 4, pp. 500-524.
Stockman, A.C. & Dellas, H. 1989, 'International portfolio nondiversification and exchange rate variability', Journal of International Economics, vol. 26, pp. 271–289.
Stulz, R. 1981, 'On the effects of barriers to international investment', Journal of Finance, vol. 36, pp. 923-934.
Stulz, R.M. 1997, 'International Portfolio Flows and Security Markets', Dice Center Working Paper - Ohio State University, pp. 97-112.
Tesar, L.L. & Werner, I. 1995, 'Home bias and high turnover', Journal of International Money and Finance, vol. 14, pp. 467–492.
Veldkamp, L. & Nieuwerburgh, S.V. 2005, 'Information Immobility and the Home Bias Puzzle', Society for Economic Dynamics, 2005 Meeting Papers
Warnock, F. & Cleaver, C. 2002, 'Financial centers and the geography of capital flows', International Finance, vol. 6, no. 1, pp. 27-59.
Warnock, F.E. 2001, 'Home bias and high turnover reconsidered', Working Paper.
Yi, K.M. 2003, 'Can Vertical Specialization Explain the Growth of World Trade?', Journal of Political Economy, vol. 111, no. 1, pp. 52-102.
Available Versions of this Item
The determinants of home bias puzzle in equity portfolio investment in Australia. (deposited UNSPECIFIED)
- The determinants of home bias puzzle in equity portfolio investment in Australia. (deposited 25. Nov 2010 04:13) [Currently Displayed]