Can Domestic Liabilities Explain the Home Bias in UK Investment Portfolios?
AbstractIt has been suggested that domestic liabilities may be an important factor in explaining the existence of a home bias in international investment portfolios. This paper provides a theoretical justification for this claim in a mean-variance framework. However, an empirical analysis for the UK does not find this effect to be large. Mean-variance efficient portfolios already exhibit significant home bias relative to the world market portfolio. Further, the predicted portfolios differ considerably from the actual portfolios of UK life assurance companies and pension funds. Possible reasons for this include weaknesses in the mean-variance approach and the role of peer pressure.
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Bibliographic InfoPaper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp116.
Date of creation: Mar 1999
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Web page: http://www.cbr.cam.ac.uk/
mean-variance; liabilities; portfolio allocation; pension funds; insurance companies.;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
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