Home Equity Bias and Industry Concentration

61 Pages Posted: 29 May 2007

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Antonio F. Miguel

Instituto Universitário de Lisboa (ISCTE - IUL)

Date Written: May 2007

Abstract

This paper examines aggregate domestic and foreign equity allocations around the world using CPIS data. We analyze the cross-country determinants of the domestic and foreign equity bias and the evolution over time of these biases and their determinants. Economic development, restrictions on foreign investment and international capital flow, stock market development and familiarity variables such as geographical distance are strong determinants of the equity biases. Moreover, our results show a positive relation between industry concentration and the domestic and foreign equity biases. Despite investors overweight domestic equities in industry-specialized countries, when they decide to invest abroad, they prefer to invest in countries with a diverse industry specialization relative to their home country. In contrast with the evidence based on stock market correlations, our findings support the view that foreign investors care about diversification opportunities.

Keywords: Investment allocation, Home Bias, Investor protection

JEL Classification: G15, G23

Suggested Citation

Ferreira, Miguel Almeida and Miguel, Antonio Freitas, Home Equity Bias and Industry Concentration (May 2007). Available at SSRN: https://ssrn.com/abstract=989341 or http://dx.doi.org/10.2139/ssrn.989341

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Antonio Freitas Miguel (Contact Author)

Instituto Universitário de Lisboa (ISCTE - IUL) ( email )

Av. das Forcas Armadas
Lisboa, 1649-026
Portugal
+351 217 903 000 (Phone)

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