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Home Bias at the Fund Level

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  • Hau, Harald
  • Rey, Hélène

Abstract

This paper presents new stylized facts on the distribution of the home bias at the fund level. We find (i) a large heterogeneity in the degree of home bias across mutual funds; (ii) a positive correlation between the size of funds and home bias; and (iii) a positive correlation between the size of funds, the number of foreign countries and the number of sectors in which they invest. These facts constitute a challenge for existing theories.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6721.

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Date of creation: Mar 2008
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Handle: RePEc:cpr:ceprdp:6721

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Keywords: asset allocation; diversification; investment behaviour;

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References

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  1. Thomas Wu & Jordi Mondria, 2007. "The Puzzling Evolution of the Home Bias, Information Processing and Financial Openness," 2007 Meeting Papers, Society for Economic Dynamics 669, Society for Economic Dynamics.
  2. Jonathan Heathcote & Fabrizio Perri, 2013. "The international diversification puzzle is not as bad as you think," Working Papers 472, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Nicolas Coeurdacier, 2006. "Do trade costs in goods market lead to home bias in equities?," 2006 Meeting Papers, Society for Economic Dynamics 111, Society for Economic Dynamics.
  4. Richard Portes & Hélène Rey, 2001. "The Determinants of Cross-Border Equity Flows," DELTA Working Papers, DELTA (Ecole normale supérieure) 2001-08, DELTA (Ecole normale supérieure).
  5. 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.
  6. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
  7. Hau, Harald & Rey, Hélène, 2003. "Exchange Rates, Equity Prices and Capital Flows," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3735, C.E.P.R. Discussion Papers.
  8. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, vol. 40(2), pages 219-254, February.
  9. Harald Hau & Hélène Rey, 2008. "Global Portfolio Rebalancing Under the Microscope," NBER Working Papers 14165, National Bureau of Economic Research, Inc.
  10. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  11. 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, American Finance Association, vol. 60(3), pages 1495-1534, 06.
  12. Harold L. Cole & Maurice Obstfeld, 1989. "Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?," NBER Working Papers 3027, National Bureau of Economic Research, Inc.
  13. Charles Engel & Akito Matsumoto, 2006. "Portfolio Choice in a Monetary Open-Economy DSGE Model," NBER Working Papers 12214, National Bureau of Economic Research, Inc.
  14. Philip R. Lane & Gian Maria Milesi-Ferretti, 2008. "International Investment Patterns," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 538-549, August.
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Citations

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Cited by:
  1. Hooley, John, 2013. "Bringing down the Great Wall? Global implications of capital account liberalisation in China," Bank of England Quarterly Bulletin, Bank of England, vol. 53(4), pages 304-315.
  2. Jinjarak, Yothin & Wongswan, Jon & Zheng, Huanhuan, 2011. "International fund investment and local market returns," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 572-587, March.
  3. Tatiana Didier & Roberto Rigobon & Sergio L. Schmukler, 2013. "Unexploited Gains From International Diversification: Patterns Of Portfolio Holdings Around The World," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1562-1583, December.
  4. Maffett, Mark, 2012. "Financial reporting opacity and informed trading by international institutional investors," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 54(2), pages 201-220.
  5. Opazo, Luis & Raddatz, Claudio & Schmukler, Sergio L., 2009. "The long and the short of emerging market debt," Policy Research Working Paper Series 5056, The World Bank.
  6. Anil Mishra, 2011. "Australia’s equity home bias and real exchange rate volatility," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 37(2), pages 223-244, August.
  7. Diyarbakirlioglu, Erkin, 2011. "Foreign equity flows and the “Size Bias”: Evidence from an emerging stock market," Emerging Markets Review, Elsevier, Elsevier, vol. 12(4), pages 485-509.
  8. Nicolas Coeurdacier & Hélène Rey, 2013. "Home Bias in Open Economy Financial Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 63-115, March.
  9. Lau, Sie Ting & Ng, Lilian & Zhang, Bohui, 2010. "The world price of home bias," Journal of Financial Economics, Elsevier, Elsevier, vol. 97(2), pages 191-217, August.
  10. Diyarbakirlioglu, Erkin, 2011. "Domestic and foreign country bias in international equity portfolios," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 21(5), pages 301-329.
  11. Jotikasthira, Chotibhak & Lundblad, Christian T. & Ramadorai, Tarun, 2009. "Asset fire sales and purchases and the international transmission of financial shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7595, C.E.P.R. Discussion Papers.
  12. Habib, Maurizio Michael & Stracca, Livio, 2013. "Foreign investors and risk shocks: seeking a safe haven or running for the exit?," Working Paper Series, European Central Bank 1609, European Central Bank.
  13. Damien PUY, 2013. "Institutional Investors Flows and the Geography of Contagion," Economics Working Papers, European University Institute ECO2013/06, European University Institute.
  14. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g81p7j6b6 is not listed on IDEAS
  15. Opazo, Luis & Raddatz, Claudio & Schmukler, Sergio L., 2014. "Institutional investors and long-term investment : evidence from Chile," Policy Research Working Paper Series 6922, The World Bank.
  16. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion-A Survey," IMF Working Papers 11/92, International Monetary Fund.

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