The influence of cultural norms on international equity allocation

Alexandru Todea and Cristina Harin

The European Journal of Finance, 2024, vol. 30, issue 12, 1362-1385

Abstract: We investigate the effect of cultural tightness-looseness on foreign bias in international equity allocation using data for 29 home investor countries and 37 destination countries for the period 2001–2018. We find that investors from a tight (loose) culture will exhibit less (more) portfolio diversification among foreign markets. Further, cultural tightness-looseness moderates the effect of Hofstede’s cultural values on foreign portfolio allocation decisions differently and depending on the cultural dimension analyzed. The consideration of cultural tightness-looseness in the models diminishes the contradictory and inconclusive results regarding the relationships between cultural values and foreign bias from previous studies.These results hold for various robustness checks.

Date: 2024
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DOI: 10.1080/1351847X.2023.2291124

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