The Determinants of Home Bias Puzzle in Equity Portfolio Investment in Australia

34 Pages Posted: 26 Nov 2010 Last revised: 11 Oct 2014

See all articles by Xuan Vinh Vo

Xuan Vinh Vo

University of Economics Ho Chi Minh City

Date Written: November 24, 2006

Abstract

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).

Keywords: home bias, portfolio equity investment, transaction costs, volatility, liquidity

JEL Classification: E22, F15, F41

Suggested Citation

Vo, Xuan Vinh, The Determinants of Home Bias Puzzle in Equity Portfolio Investment in Australia (November 24, 2006). Available at SSRN: https://ssrn.com/abstract=1714344 or http://dx.doi.org/10.2139/ssrn.1714344

Xuan Vinh Vo (Contact Author)

University of Economics Ho Chi Minh City ( email )

Ho Chi Minh City, Ho Chi Minh City
Vietnam

HOME PAGE: http://www.ueh.edu.vn

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