Stress Testing the Equity Home Bias: A Turnover Analysis of Eurozone Markets

Manuela Geranio and Valter Lazzari

No 19114, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: Shifts in equity turnover happen on and around holidays because rationally bounded investors become distracted. Their pattern reveals a persistent equity home bias even in the Eurozone, a stress test case for the survival of this bias given the high level of economic and financial development and integration in this area. The bias is greater for small caps because investors are reluctant to hold this class of foreign asset. Our study corroborates calendar anomalies in trading volumes, but refutes the hypothesis regarding turnover sensitivity to stock returns common in the empirical and theoretical literature based on investor heterogeneity and short sale constraints. Our results reveal vanishing cost asymmetries in taking long rather than short positions.

Keywords: Home bias; Equity markets; trading volumes; holiday effect; Eurozone exchanges (search for similar items in EconPapers)
JEL-codes: F36 G12 G41 (search for similar items in EconPapers)
Pages: 39
Date: 2019
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (2)

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