The Nexus Between Foreign Portfolio Diversification and Kinship

Socaciu Erzsébet-Mirjám ()
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Socaciu Erzsébet-Mirjám: Babeș-Bolyai University, Romania

Studia Universitatis Babeș-Bolyai Oeconomica, 2023, vol. 68, issue 2, 1-16

Abstract: This study seeks to understand the effect of kinship tightness of a society on foreign portfolio diversification. Using data for 42 home investor countries and 44 destination countries for the period of 2004-2021, it is found that investors from more tight-knit kinship societies tend to have smaller proportion of equities invested abroad, thus holding sub-diversified portfolios. The enforcement of these tight kinship societies is based on shame and communal values fostering local monitoring practices which leads to the absence of cooperation and trust, thus reducing stock market participation. It is further shown that kinship tightness can be shaped by enhanced financial literacy, which in turn fosters international diversification. On the other hand, loose kinship societies can be viewed as trust-promoting alternative mechanisms where formal institutions are less effective.

Keywords: international portfolio diversification; kinship; trust; financial literacy (search for similar items in EconPapers)
JEL-codes: G11 G15 O16 Z10 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:subboe:v:68:y:2023:i:2:p:1-16:n:3

DOI: 10.2478/subboec-2023-0006

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