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International diversification gains and home bias in banking

Listed author(s):
  • García-Herrero, Alicia
  • Vázquez, Francisco

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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File URL: http://www.sciencedirect.com/science/article/pii/S037842661300112X
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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
DOI: 10.1016/j.jbankfin.2013.02.024
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Lessard, Donald R, 1973. "International Portfolio Diversification: A Multivariate Analysis for a Group of Latin American Countries," Journal of Finance, American Finance Association, vol. 28(3), pages 619-633, June.
  2. Evelyn Hayden & Daniel Porath & Natalja Westernhagen, 2007. "Does Diversification Improve the Performance of German Banks? Evidence from Individual Bank Loan Portfolios," Journal of Financial Services Research, Springer;Western Finance Association, vol. 32(3), pages 123-140, December.
  3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
  4. Buch, Claudia M. & Driscoll, John C. & Ostergaard, Charlotte, 2005. "Cross-border diversification in bank asset portfolios," Working Paper Series 429, European Central Bank.
  5. 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.
  6. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-675, September.
  7. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
  8. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  9. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  10. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
  11. repec:hrv:faseco:30747160 is not listed on IDEAS
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