Equity Home Bias: A Disappearing Phenomenon?

37 Pages Posted: 21 Oct 2004

Date Written: May 5, 2004

Abstract

The presence of home bias in equity portfolios has been a focus of the international finance literature for the past couple of decades. Recent developments and data collections, however, offer some insight into understanding the equity home bias phenomenon. This paper first demonstrates that there has been a distinct reduction equity home bias in recent years. It then examines if any of the prominent theoretical explanations or recent developments such as free trade and globalization, the advent the internet, and the rise of emerging markets and mutual fund investment have affected the increase in foreign diversification. The empirical analysis produces some interesting results. It demonstrates that the rise of the internet and mutual fund investment have indeed affected the changes in foreign diversification, supporting an information-asymmetries explanation. The results also indicate that other factors such as market size, which intuitively might be expected to affect foreign diversification, are insignificant.

Keywords: International portfolio diversification, equity home bias

JEL Classification: F30, G11

Suggested Citation

Amadi, Amir Andrew, Equity Home Bias: A Disappearing Phenomenon? (May 5, 2004). Available at SSRN: https://ssrn.com/abstract=540662 or http://dx.doi.org/10.2139/ssrn.540662

Amir Andrew Amadi (Contact Author)

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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