The home bias is here to stay

Haim Levy and Moshe Levy ()

Journal of Banking & Finance, 2014, vol. 47, issue C, 29-40

Abstract: Over the last 15years, dramatically decreasing foreign investment costs have not reduced the home bias. We show that the home bias induced by a given cost is proportional to the factor ρ/(1−ρ), where ρ is the average correlation between markets. This factor is very sensitive to the correlation, especially when the correlation is high. Empirically, correlations have been steadily increasing from 0.4 in the 90’s to about 0.9 today. Thus, the decreasing extra costs are increasingly magnified, explaining the persistence of the home bias, and predicting its continuation.

Keywords: Home bias; International diversification; Portfolio optimization (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:47:y:2014:i:c:p:29-40

DOI: 10.1016/j.jbankfin.2014.06.020

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