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International diversification gains and home bias in banking

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  • García-Herrero, Alicia
  • Vázquez, Francisco

Abstract

This paper studies international diversification in banking, exploiting a bank-level dataset that covers the operations of 38 global banks and their subsidiaries overseas during 1995–2004. The paper finds that banks with a larger share of assets allocated to subsidiaries in emerging market countries were able to attain higher risk-adjusted returns. These gains were somewhat reduced by the concentration of bank subsidiaries in specific geographical regions, which is typical of the observed international expansion strategies. The paper also finds a substantial home bias in the international allocation of bank assets relative to the results of a mean–variance portfolio optimization model.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 7 ()
Pages: 2560-2571

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:7:p:2560-2571

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: International banking; Home bias; Portfolio diversification; Basel II; Basel III;

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References

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  1. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
  2. Viral V. Acharya & Iftekhar Hasan & Anthony Saunders, 2002. "The effects of focus and diversification on bank risk and return: evidence from individual bank loan portfolios," Proceedings 905, Federal Reserve Bank of Chicago.
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  5. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
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Cited by:
  1. Georgiadis, Georgios, 2012. "Towards an explanation of cross-country asymmetries in monetary transmission," Discussion Papers 07/2012, Deutsche Bundesbank, Research Centre.
  2. Markus Leibrecht & Johann Scharler, 2009. "Banks, Financial Markets and International Consumption Risk Sharing," Economics working papers 2009-14, Department of Economics, Johannes Kepler University Linz, Austria.
  3. Eric van Wincoop, 2011. "International Contagion Through Leveraged Financial Institutions," NBER Working Papers 17686, National Bureau of Economic Research, Inc.
  4. Cetorelli, Nicola & Goldberg, Linda S., 2008. "Banking globalization, monetary transmission and the lending channel," Discussion Paper Series 1: Economic Studies 2008,21, Deutsche Bundesbank, Research Centre.
  5. Alicia García-Herrero & Sergio Gavilá & Daniel Santabárbara, 2009. "What explains the low profitability of Chinese banks?," Banco de Espa�a Working Papers 0910, Banco de Espa�a.
  6. Can Bertay, A. & Demirgüc-Kunt, A. & Huizinga, H.P., 2011. "Is the Financial Safety Net a Barrier to Cross-Border Banking?," Discussion Paper 2011-132, Tilburg University, Center for Economic Research.
  7. Lasse Steiner & Bruno S. Frey & Magnus Resch, 2013. "Home is where your art is: the home bias of art collectors," ECON - Working Papers 135, Department of Economics - University of Zurich.

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