U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis

Abstract:     
We analyze a unique data set and uncover a remarkable result
that casts a new light on the home bias phenomenon. The data
are comprehensive, security-level holdings of emerging market
equities by U.S. investors. We document, as expected, that at
a point in time U.S. portfolios are tilted towards firms that
are large, have fewer restrictions on foreign ownership, or are cross-listed on a U.S. exchange. The size of the cross-listing
effect is striking. In contrast to the well-documented
underweighting of foreign stocks, emerging market equities
that are cross-listed on a U.S. exchange are incorporated into
U.S. portfolios at full international CAPM weights. Our results
suggest that information asymmetries play an important role in
equity home bias and that the benefits of international risk
sharing are limited to select firms.

Keywords: emerging markets, portfolio choice, home bias, international risk sharing

JEL Classifications: F3, G15

Working Paper Series