Real effects of financial market integration: does lower home bias lead to welfare benefits?

Crina Pungulescu

The European Journal of Finance, 2015, vol. 21, issue 10-11, 893-911

Abstract: This paper proposes equity home bias as a proxy for financial integration in the ongoing empirical debate on the impact of financial integration on economic growth. In integrated markets, investors are expected to take full advantage of the potential for international diversification. The extent of equity home bias (i.e. overinvesting in domestic stocks and foregoing gains from international diversification) provides a relevant quantity-based measure of financial integration. Using different techniques to compute home bias, this paper investigates whether countries with lower home bias experience faster economic growth. Additionally, the analysis extends to the link between (decreasing) home bias and international risk sharing and income inequality. The results suggest that financial integration, proxied by the decreasing equity home bias, is positively associated with economic growth and international risk sharing. At the same time, it appears that higher financial integration pairs with higher income inequality.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2012.744762 (text/html)
Access to full text is restricted to subscribers.

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:taf:eurjfi:v:21:y:2015:i:10-11:p:893-911

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2012.744762

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().