Corporate Governance and the Home Bias
Georgetown University - Department of Finance
Georgetown University - McDonough School of Business
Rene M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Dice Center Working Paper No. 2001-19
In most countries, many of the largest corporations are controlled by large shareholders. We show that, under reasonable assumptions, this stylized fact implies that portfolio holdings of U.S. investors should exhibit a home bias in equilibrium. We construct an estimate of the world portfolio of shares available to investors who are not controlling shareholders. This available world portfolio differs sharply from the world market portfolio. In regressions explaining the portfolio weights of U.S. investors, the world portfolio of available shares has a positive significant coefficient but the world market portfolio has no additional explanatory power. This result holds when we control for country characteristics.
Number of Pages in PDF File: 35
JEL Classification: G110, G120, G150, G320working papers series
Date posted: December 8, 2001
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