Home Bias and the High Turnover
Linda L. Tesar
University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)
Ingrid M. Werner
The Ohio State University - Fisher College of Business
NBER Working Paper No. w4218
This paper documents the available evidence on international portfolio investment in five GECD countries. We draw three conclusions from the data. First. there is strong evidence of a home bias in national investment portfolios despite the potential gains from international diversification. Second, to the extent investors hold international securities, the composition of the portfolio of foreign securities seems to reflect factors other than diversification of risk. Third, the high volume of cross-border capital flows and the high turnover rate on foreign equity investments relative to domestic equity markets suggests that transactions costs and incomplete information are unlikely to be important deterrents to international investment. These observations suggest that a richer set of models is required to account for international investment behavior.
Number of Pages in PDF File: 52working papers series
Date posted: May 26, 2004
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