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Equity home bias—A global perspective from the shrunk frontier

Raja Mukherjee, Satya Paul () and Sriram Shankar

Economic Analysis and Policy, 2018, vol. 57, issue C, 9-21

Abstract: Equity home bias research explicates the need for correct characterisation of benchmark (optimum) foreign equity investment weights required for the estimation of equity home bias. This paper improves upon the traditional mean–variance optimisation framework by utilising the Bayes–Stein shrinkage technique to obtain optimal equity weights and home bias estimates for 39 countries for the period, 2000–2009. A regression model estimated with system GMM identifies financial integration, trade openness (exposure), stock market capitalisation, idiosyncratic risk and Global Financial Crisis (GFC) as the significant determinants of equity home bias. Unlike earlier studies, the relationship between home bias and financial integration is found to be U-shaped.

Keywords: Equity home bias; Equity investment; Optimal investment weights; Bayes–Stein shrinkage; GMM estimation (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.eap.2017.10.003

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