EconPapers    
Economics at your fingertips  
 

Foreign bias in Australia's international equity holdings

Anil Mishra ()

Review of Financial Economics, 2017, vol. 33, issue C, 41-54

Abstract: The paper uses various approaches: capital asset pricing, mean-variance, global minimum-variance, Bayes-Stein, Bayesian and multi-prior to develop foreign equity bias measures for Australia’s international equity holdings in 41 countries, over the period 2001 to 2012. Bayesian models allow for various degrees of mis-trust in the ICAPM model. Multi-Prior restricts the expected return for each asset to lie within specified confidence interval around its estimated value. Mean-Variance computes optimal weights by sample estimates of mean and covariance matrix of sample return. Bayes-Stein shrinks each asset’s historical mean return toward the return of the minimum variance portfolio and improves precision associated with estimating the expected return of each asset. The plausible sources of foreign equity bias are trade, GDP per capita, real GDP growth rate, exchange rate volatility, tax credit, stock market development, familiarity and institution variables. The paper finds that economic cost of the observed foreign bias is low. The paper analyses correlation effect on the foreign bias and finds that economic loss decreases with an increase in correlation.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1058330016300246
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:33:y:2017:i:c:p:41-54

Access Statistics for this article

Review of Financial Economics is currently edited by T. K. Mukherjee and G. Whitney

More articles in Review of Financial Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-05-18
Handle: RePEc:eee:revfin:v:33:y:2017:i:c:p:41-54