International portfolio diversification and the home bias puzzle

Junyong Lee, Kyounghun Lee and Frederick Dongchuhl Oh

Research in International Business and Finance, 2023, vol. 64, issue C

Abstract: We review the literature on equity home bias, a phenomenon stating that investors do not hold enough foreign equities for an optimally diversified portfolio. We begin by defining the home bias measurement and reviewing related evidence on the bias. Further, we consider four explanations for this puzzling phenomenon: barriers to foreign investment, country-specific risks, information asymmetry, and cultural and behavioral factors. We analyze the related theoretical arguments and empirical findings of prior studies within each explanation. Based on the discussion of previous studies, several avenues for future research are suggested. (JEL G11, G15, F41)

Keywords: International portfolio choice; Home bias; Institutional barrier; Hedging risk; Information asymmetry; Behavioral bias (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922001933

DOI: 10.1016/j.ribaf.2022.101807

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