The Home Bias: Evolution, Determinants, and Financial Crises

Rifa Atrous and Ezzeddine Abaoub

International Journal of Economics and Finance, 2024, vol. 16, issue 7, 60

Abstract: This article examines the persistent phenomenon of “home bias” and its determinants in international portfolio management, with a particular focus on the inherent challenges posed by the puzzle of preference for domestic assets and its impact on financial markets, highlighting the period of the COVID-19 pandemic. Utilizing a multiple linear regression model, estimated through Ordinary Least Squares (OLS) method, applied to data covering 43 countries over a 15-year period, this study reveals that home bias remains more pronounced in emerging economies, with significant variations in terms of factors such as economic development, governance, financial openness, information asymmetry, technology, and other explanatory variables. The findings underscore the crucial importance of understanding the underlying mechanisms of home bias, especially during financial crises, for investors, regulators, and policymakers. Additionally, the article suggests that information asymmetry continues to play a vital role in this preference, but other economic and behavioral factors also influence foreign investment decisions.

Date: 2024
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