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The Nexus Between Foreign Portfolio Diversification and Kinship

Author

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  • Socaciu Erzsébet-Mirjám

    (Babeș-Bolyai University, Romania)

Abstract

This study seeks to understand the effect of kinship tightness of a society on foreign portfolio diversification. Using data for 42 home investor countries and 44 destination countries for the period of 2004-2021, it is found that investors from more tight-knit kinship societies tend to have smaller proportion of equities invested abroad, thus holding sub-diversified portfolios. The enforcement of these tight kinship societies is based on shame and communal values fostering local monitoring practices which leads to the absence of cooperation and trust, thus reducing stock market participation. It is further shown that kinship tightness can be shaped by enhanced financial literacy, which in turn fosters international diversification. On the other hand, loose kinship societies can be viewed as trust-promoting alternative mechanisms where formal institutions are less effective.

Suggested Citation

  • Socaciu Erzsébet-Mirjám, 2023. "The Nexus Between Foreign Portfolio Diversification and Kinship," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 68(2), pages 1-16, August.
    • Handle: RePEc:vrs:subboe:v:68:y:2023:i:2:p:1-16:n:3
    DOI: 10.2478/subboec-2023-0006
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    References listed on IDEAS

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    More about this item

    Keywords

    international portfolio diversification; kinship; trust; financial literacy;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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