The effects of portfolio size on international equity home bias puzzle
AbstractThis paper investigates a new explanation for the international equity home bias puzzle based on an endogenous asymmetric information model. Using a cross-sectional mutual fund data set, it is found that the degrees of home bias across fund managers are negatively correlated to the asset sizes under their management. This result is consistent with the theoretical prediction in the endogenous asymmetric information model--the portfolio managers with the larger assets tend to acquire more information regarding foreign equity and, hence, hold more foreign equity holdings.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 18 (2009)
Issue (Month): 3 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620165
Equity home bias Asymmetric information Mutual fund;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brian J. Bushee & Theodore H. Goodman, 2007. "Which Institutional Investors Trade Based on Private Information About Earnings and Returns?," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 289-321, 05.
- Stulz, Rene M, 1981. "On the Effects of Barriers to International Investment," Journal of Finance, American Finance Association, vol. 36(4), pages 923-34, September.
- John R. Graham & Campbell R. Harvey & Hai Huang, 2005.
"Investor Competence, Trading Frequency, and Home Bias,"
NBER Working Papers
11426, National Bureau of Economic Research, Inc.
- John R. Graham & Campbell R. Harvey & Hai Huang, 2009. "Investor Competence, Trading Frequency, and Home Bias," Management Science, INFORMS, vol. 55(7), pages 1094-1106, July.
- Michael J. Brennan. and H. Henry Cao., 1997.
"International Portfolio Investment Flows,"
Research Program in Finance Working Papers
RPF-271, University of California at Berkeley.
- Eldor, Rafael & Pines, David & Schwartz, Abba, 1988. "Home asset preference and productivity shocks," Journal of International Economics, Elsevier, vol. 25(1-2), pages 165-176, August.
- Rowland, Patrick F., 1999. "Transaction costs and international portfolio diversification," Journal of International Economics, Elsevier, vol. 49(1), pages 145-170, October.
- Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
- Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2005.
"On the Industry Concentration of Actively Managed Equity Mutual Funds,"
Journal of Finance,
American Finance Association, vol. 60(4), pages 1983-2011, 08.
- Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2004. "On the Industry Concentration of Actively Managed Equity Mutual Funds," NBER Working Papers 10770, National Bureau of Economic Research, Inc.
- Mark Bagnoli & Susan G. Watts, 2000. "Chasing Hot Funds: The Effects of Relative Performance on Portfolio Choice," Financial Management, Financial Management Association, vol. 29(3), Fall.
- Amadi, Amir A. & Bergin, Paul R., 2008.
"Understanding international portfolio diversification and turnover rates,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 18(2), pages 191-206, April.
- Amir Amadi & Paul Bergin, 2006. "Understanding International Portfolio Diversification and Turnover Rates," NBER Working Papers 12473, National Bureau of Economic Research, Inc.
- Errunza, Vihang & Losq, Etienne, 1985. " International Asset Pricing under Mild Segmentation: Theory and Test," Journal of Finance, American Finance Association, vol. 40(1), pages 105-24, March.
- Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, 06.
- Hali J. Edison & Francis E. Warnock, 2004.
"U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis,"
The Review of Economics and Statistics,
MIT Press, vol. 86(3), pages 691-704, August.
- Hali J. Edison & Francis E. Warnock, 2003. "U.S. investors' emerging market equity portfolios: a security-level analysis," International Finance Discussion Papers 771, Board of Governors of the Federal Reserve System (U.S.).
- Cooper, Ian & Kaplanis, Evi, 1994. "Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 45-60.
- Norman Strong & Xinzhong Xu, 2003. "Understanding the Equity Home Bias: Evidence from Survey Data," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 307-312, May.
- Marianne Baxter & Urban J. Jermann, 1995.
"The International Diversification Puzzle is Worse Than You Think,"
NBER Working Papers
5019, National Bureau of Economic Research, Inc.
- Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-80, March.
- Baxter, M. & Jermann, U.J., 1993. "The International Diversification Puzzle is Worse than you Think," RCER Working Papers 350, University of Rochester - Center for Economic Research (RCER).
- Gikas A. Hardouvelis & Rafael La Porta & Thierry A. Wizman, 1993.
"What moves the discount on country equity funds?,"
9324, Federal Reserve Bank of New York.
- Kang, Jun-Koo & Stulz, Rene M., 1997.
"Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan,"
Journal of Financial Economics,
Elsevier, vol. 46(1), pages 3-28, October.
- Jun-Koo Kang & Rene M. Stulz, 1995. "Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan," NBER Working Papers 5166, National Bureau of Economic Research, Inc.
- Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
- Torben Lütje & Lukas Menkhoff, 2007.
"What drives home bias? Evidence from fund managers' views,"
International Journal of Finance & Economics,
John Wiley & Sons, Ltd., vol. 12(1), pages 21-35.
- Lütje, Torben & Menkhoff, Lukas, 2004. "What Drives Home Bias? Evidence from Fund Managers Views," Hannover Economic Papers (HEP) dp-296, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Lewis, Karen K., 1995. "Puzzles in international financial markets," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 37, pages 1913-1971 Elsevier.
- Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
- Mark Grinblatt, 2001. "How Distance, Language, and Culture Influence Stockholdings and Trades," Journal of Finance, American Finance Association, vol. 56(3), pages 1053-1073, 06.
- Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
- Karlsson, Anders & Norden, Lars, 2007. "Home sweet home: Home bias and international diversification among individual investors," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 317-333, February.
- Black, Fischer, 1974. "International capital market equilibrium with investment barriers," Journal of Financial Economics, Elsevier, vol. 1(4), pages 337-352, December.
- Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
- Stockman, Alan C. & Dellas, Harris, 1989. "International portfolio nondiversification and exchange rate variability," Journal of International Economics, Elsevier, vol. 26(3-4), pages 271-289, May.
- Barron, John M. & Ni, Jinlan, 2008. "Endogenous asymmetric information and international equity home bias: The effects of portfolio size and information costs," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 617-635, June.
- Reena Aggarwal & Leora Klapper & Peter D. Wysocki, 2003.
"Portfolio preferences of foreign institutional investors,"
Policy Research Working Paper Series
3101, The World Bank.
- Aggarwal, Reena & Klapper, Leora & Wysocki, Peter D., 2005. "Portfolio preferences of foreign institutional investors," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 2919-2946, December.
- Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
- Gehrig, Thomas, 1993. " An Information Based Explanation of the Domestic Bias in International Equity Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(1), pages 97-109.
- Diyarbakirlioglu, Erkin, 2011. "Domestic and foreign country bias in international equity portfolios," Journal of Multinational Financial Management, Elsevier, vol. 21(5), pages 301-329.
- Pham, Cong S. & Lovely, Mary E. & Mitra, Devashish, 2014.
"The home-market effect and bilateral trade patterns: A reexamination of the evidence,"
International Review of Economics & Finance,
Elsevier, vol. 30(C), pages 120-137.
- Cong S. Pham & Mary E. Lovely & Devashish Mitra, 2009. "The Home-Market Effect and Bilateral Trade Patterns: A Reexamination of the Evidence," Economics Series 2009_12, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
- Diyarbakirlioglu, Erkin, 2011. "Foreign equity flows and the “Size Bias”: Evidence from an emerging stock market," Emerging Markets Review, Elsevier, vol. 12(4), pages 485-509.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.