IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v14y1995i4p467-492.html
   My bibliography  Save this article

Home bias and high turnover

Author

Listed:
  • Tesar, Linda L.
  • Werner, Ingrid M.

Abstract

This paper documents the available evidence on international portfolio investment in five GECD countries. We draw three conclusions from the data. First. there is strong evidence of a home bias in national investment portfolios despite the potential gains from international diversification. Second, to the extent investors hold international securities, the composition of the portfolio of foreign securities seems to reflect factors other than diversification of risk. Third, the high volume of cross-border capital flows and the high turnover rate on foreign equity investments relative to domestic equity markets suggests that transactions costs and incomplete information are unlikely to be important deterrents to international investment. These observations suggest that a richer set of models is required to account for international investment behavior.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jimfin:v:14:y:1995:i:4:p:467-492
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0261-5606(95)00023-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Campbell, John Y & Hamao, Yasushi, 1992. "Predictable Stock Returns in the United States and Japan: A Study of Long-Term Capital Market Integration," Journal of Finance, American Finance Association, vol. 47(1), pages 43-69, March.
    2. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
    3. Charles M. Engel, 1994. "Tests of CAPM on an International Portfolio of Bonds and Stocks," NBER Chapters, in: The Internationalization of Equity Markets, pages 149-183, National Bureau of Economic Research, Inc.
    4. Lois E. Stekler & Edwin M. Truman, 1992. "The adequacy of the data on U.S. international financial transactions: a Federal Reserve perspective," International Finance Discussion Papers 430, Board of Governors of the Federal Reserve System (U.S.).
    5. Harvey, Campbell R, 1995. "The Risk Exposure of Emerging Equity Markets," The World Bank Economic Review, World Bank Group, vol. 9(1), pages 19-50, January.
    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. French, Kenneth R. & Poterba, James M., 1991. "Were Japanese stock prices too high?," Journal of Financial Economics, Elsevier, vol. 29(2), pages 337-363, October.
    9. 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.
    10. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
    11. Harvey, Campbell R, 1991. "The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-157, March.
    12. Adler, Michael & Dumas, Bernard, 1983. "International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-984, June.
    13. Robert R. Grauer and Nils H. Hakansson., 1987. "Gains from International Diversification: l968-85 Returns on Portfolios of Stocks and Bonds," Research Program in Finance Working Papers 168, University of California at Berkeley.
    14. Linda L. Tesar & Ingrid M. Werner, 1994. "International Equity Transactions and U.S. Portfolio Choice," NBER Chapters, in: The Internationalization of Equity Markets, pages 185-227, National Bureau of Economic Research, Inc.
    15. Dumas, Bernard, 1989. "Two-Person Dynamic Equilibrium in the Capital Market," Review of Financial Studies, Society for Financial Studies, vol. 2(2), pages 157-188.
    16. 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.
    17. Tesar, Linda L & Werner, Ingrid M, 1995. "U.S. Equity Investment in Emerging Stock Markets," The World Bank Economic Review, World Bank Group, vol. 9(1), pages 109-129, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hasan, Iftekhar & Simaan, Yusif, 2000. "A rational explanation for home country bias," Journal of International Money and Finance, Elsevier, vol. 19(3), pages 331-361, June.
    2. Tesar, Linda L., 1995. "Evaluating the gains from international risksharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 95-143, June.
    3. Liljeblom, Eva & Loflund, Anders, 2005. "Determinants of international portfolio investment flows to a small market: Empirical evidence," Journal of Multinational Financial Management, Elsevier, vol. 15(3), pages 211-233, July.
    4. 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.
    5. repec:hal:wpspec:info:hdl:2441/c8dmi8nm4pdjkuc9g81p7j6b6 is not listed on IDEAS
    6. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g81p7j6b6 is not listed on IDEAS
    7. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g81p7j6b6 is not listed on IDEAS
    8. 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, June.
    9. repec:hal:spmain:info:hdl:2441/1shj1p7td8e0r5c9fcsnk8a91 is not listed on IDEAS
    10. Coen, Alain, 2001. "Home bias and international capital asset pricing model with human capital," Journal of Multinational Financial Management, Elsevier, vol. 11(4-5), pages 497-513, December.
    11. Ephraim Clark & Konstantinos Kassimatis, 2013. "International equity flows, marginal conditional stochastic dominance and diversification," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 251-271, February.
    12. Karen K. Lewis, 2011. "Global Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 435-466, December.
    13. Thapa, Chandra & Poshakwale, Sunil S., 2012. "Country-specific equity market characteristics and foreign equity portfolio allocation," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 189-211.
    14. Gómez, Juan Pedro & Zapatero, Fernando, 1997. "The role of institutional investors in international trading: an explanation of the home bias puzzle," DEE - Working Papers. Business Economics. WB 7034, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    15. Daly, Kevin & Vo, Xuan Vinh, 2013. "The determinants of home bias puzzle in equity portfolio investment in Australia," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 34-42.
    16. De Moor, Lieven & Sercu, Piet & Vanpée, Rosanne, 2010. "The plausibility of risk estimates and implied costs to international equity investments," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 623-644, September.
    17. Fidora, Michael & Fratzscher, Marcel & Thimann, Christian, 2007. "Home bias in global bond and equity markets: The role of real exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 631-655, June.
    18. Mishra, Anil V., 2015. "Measures of equity home bias puzzle," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 293-312.
    19. Rene M. Stulz, 1994. "International Portfolio Choice and Asset Pricing: An Integrative Survey," NBER Working Papers 4645, National Bureau of Economic Research, Inc.
    20. Thomas J. Flavin & Michael R. Wickens, 1998. ": A Risk Management Approach to Optimal Asset Allocation," Economics Department Working Paper Series n851298, Department of Economics, National University of Ireland - Maynooth.
    21. Linda L. Tesar & Ingrid M. Werner, 1994. "International Equity Transactions and U.S. Portfolio Choice," NBER Chapters, in: The Internationalization of Equity Markets, pages 185-227, National Bureau of Economic Research, Inc.
    22. Garg, Reetika & Dua, Pami, 2014. "Foreign Portfolio Investment Flows to India: Determinants and Analysis," World Development, Elsevier, vol. 59(C), pages 16-28.
    23. Karen K. Lewis, 1998. "International Home Bias in International Finance and Business Cycles," NBER Working Papers 6351, National Bureau of Economic Research, Inc.
    24. Astrid Eisenberg & Markus Rudolf, 2007. "Exchange Rates and the Conversion of Currency‐Specific Risk Premia," European Financial Management, European Financial Management Association, vol. 13(4), pages 672-701, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:14:y:1995:i:4:p:467-492. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.