Home Bias and the High Turnover

52 Pages Posted: 26 May 2004 Last revised: 19 Jul 2010

See all articles by Linda L. Tesar

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

Date Written: November 1992

Abstract

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.

Suggested Citation

Tesar, Linda L. and Werner, Ingrid M., Home Bias and the High Turnover (November 1992). NBER Working Paper No. w4218. Available at SSRN: https://ssrn.com/abstract=227067

Linda L. Tesar (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
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734-763-2254 (Phone)
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National Bureau of Economic Research (NBER)

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Ingrid M. Werner

The Ohio State University - Fisher College of Business ( email )

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Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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