Investor Biases in Japan

50 Pages Posted: 17 Sep 2003

See all articles by Takato Hiraki

Takato Hiraki

Tokyo University of Science - School of Management

Hideaki Inoue

Nippon Life Insurance Company

Akitoshi Ito

Hitotsubashi University Business School

Fumiaki Kuroki

NLI Research Institute

Hiroyuki Masuda

Nissay Information Technology Co, Ltd.

Date Written: July 25, 2003

Abstract

We examine how foreign and domestic portfolio investors similarly or dissimilarly invest in Japanese firms for the period of 1985-1998. We propose the agency as well as relational explanations of foreign and domestic institutional investor biases. These explanations can explain bias patterns of foreign investors as well as those of domestic institutional investors in Japan; the latter are uniquely different from domestic money managers in other countries. We find that foreign investors over-invest in familiar and prudent firms while domestic institutional investors over-invest in large firms but do under-invest in the prudent in financial ratios. In addition, foreign investors become more export-firm oriented while the opposite time varying pattern is found for domestic institutional investors. Our empirical tests reveal that biases of these two classes of institutional investors do not exactly get subsumed under a common institutional investor bias mainly because of the unique relational factor in Japan.

Keywords: Foreign investors, Home bias, Institutional investors, Investor familiarity, The Japanese stock market

JEL Classification: G1, G15

Suggested Citation

Hiraki, Takato and Inoue, Hideaki and Ito, Akitoshi and Kuroki, Fumiaki and Masuda, Hiroyuki, Investor Biases in Japan (July 25, 2003). Available at SSRN: https://ssrn.com/abstract=437300 or http://dx.doi.org/10.2139/ssrn.437300

Takato Hiraki

Tokyo University of Science - School of Management ( email )

6-3-1 NiiJuku Katsushika-Ku
Tokyo, 125-8585
Japan
+81-480-21-7611 (Phone)
+81-480-21-7654 (Fax)

Hideaki Inoue

Nippon Life Insurance Company ( email )

Tokyo
Japan

Akitoshi Ito (Contact Author)

Hitotsubashi University Business School ( email )

2-1-2 Hitotsubashi
Chiyoda-ku, Tokyo, 101-8439
Japan

Fumiaki Kuroki

NLI Research Institute ( email )

Tokyo, 100-0006
Japan

Hiroyuki Masuda

Nissay Information Technology Co, Ltd. ( email )

1-1-1 Yuraku-cho, Chiyoda-ku
Tokyo 100-0006
Japan

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