Bond and Equity Home Bias and Foreign Bias: an International Study
AbstractIn this paper we explore tentatively and formally the differences between bond and equity home bias and foreign bias based on one large scale dataset including developed and emerging markets for the period 2001 to 2010. We set the stage by tentatively and formally linking the diversion of bond and equity home bias in OECD countries to the increasing public debt issues under the form of government bonds i.e. the supply-driven argument. Unlike Fidora et al. (2007) we do not find that exchange rate volatility has a greater impact on bond home bias than on equity home bias. We find, instead, that exchange rate volatility has a greater impact on bond foreign bias than on equity foreign bias. We also show that the level of financial development is more important for attracting foreign bond investors than foreign equity investors; and country and corporate governance practices matter more for international equity portfolios than for international bond portfolios. Besides variables being significantly more, less or incompatibly important for bond versus equity home and foreign bias, we also find variables exclusively significant for bonds. Above all this paper points out the distinct nature of bond home and foreign bias versus equities and, therefore, stimulates further research on bond home and foreign bias despite the large amount of existing literature on equity home bias.
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Bibliographic InfoPaper provided by Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2012/24.
Length: 35 page
Date of creation: May 2012
Date of revision:
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- G. Andrew Karolyi & David T. Ng & Eswar S. Prasad, 2013. "The Coming Wave," Working Papers 082013, Hong Kong Institute for Monetary Research.
- Gajewski, Krzysztof & Olszewski, Krzysztof & Pawłowska, Małgorzata & Rogowski, Wojciech & Tchorek, Grzegorz & Zięba, Jolanta, 2012.
"Integracja finansowa w Europie po wprowadzeniu euro. Przegląd literatury
[Financial integration in Europe after the introduction of the euro. A literature overview]," MPRA Paper 42482, University Library of Munich, Germany.
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