International Portfolio Choices with Investment Barriers: A Multifactor Approach

Posted: 3 Apr 2010

See all articles by Fathi Abid

Fathi Abid

University of Sfax, Faculty of Economic and Management Sciences, Probability & Statistics Laboratory

Slah Bahloul

University of Sfax - Higher Institute of Business Administration

Date Written: April 3, 2010

Abstract

The purpose of this paper is to study the portfolio choice problem in the presence of a mixture of barriers to international investment from the view point of G-7 investors. We suggest a methodology based on a combination of the Analytic Hierarchy Process (AHP) and the weighted goal programming model. Seven barriers to international diversification have been considered: Information costs, investor behavior, geographical distance, transaction costs, expropriation risk, market size, and capital flow restrictions. Results show diverse AHP-goal programming portfolios according to the relative weight allowed to the barriers of international investment in the objective function. Also, except for US investors, domestic bias according to the AHP-GPP are lower than those calculated on the basis of the weighted capital market portfolios. Hence, a combined AHP-goal programming model can explain some of the home bias effect but it is not sufficient to explain the degree of the home bias observed in investor portfolios.

Keywords: International Portfolio Choice, Barriers to International Investment, Home Bias, Analytic Hierarchy Process, Weighted Goal Programming

JEL Classification: F3, G11,G15

Suggested Citation

Abid, Fathi and Bahloul, Slah, International Portfolio Choices with Investment Barriers: A Multifactor Approach (April 3, 2010). Available at SSRN: https://ssrn.com/abstract=1583863 or http://dx.doi.org/10.2139/ssrn.1583863

Fathi Abid

University of Sfax, Faculty of Economic and Management Sciences, Probability & Statistics Laboratory ( email )

Road of Airport, Km 4
Sfax, sfax 3018
Tunisia
+216 7427 9154 (Phone)

Slah Bahloul (Contact Author)

University of Sfax - Higher Institute of Business Administration ( email )

Road of the Airport 4
Sfax, BP 1013
Tunisia

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