A Measure of Pure Home Bias
Ian A Cooper,
Piet Sercu and
Review of Finance, 2018, vol. 22, issue 4, 1469-1514
The literature on international equity holdings distinguishes between home bias (overweighting of home stocks) and foreign bias (relative underweighting for more “distant” countries). The two biases can be integrated into one distance-based model. We define pure home bias as the excess of home bias relative to this model, and find pure home bias only in emerging markets. Countries with high tax rates and low credit standing have higher pure home bias, and more development comes with lower distance aversion. Methodologically, the choice of portfolio bias measure matters. We find the best measure to be a covariance-based measure relative to the world average.
Keywords: Home bias; Foreign bias; Pure home bias; Distance; Deadweight costs; Economic and financial development; Reputation (search for similar items in EconPapers)
JEL-codes: G15 G18 G30 G38 F3 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:revfin:v:22:y:2018:i:4:p:1469-1514.
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