 Foreign bias in equity portfolios: Informational advantage or familiarity bias?Martijn Boermans, Ian Cooper, Piet Sercu and Rosanne Vanpée Working Papers from DNB Abstract: We use the European Central Bank's new and detailed database of European equity holdings by households to test two competing theories of international biases in equity portfolios, viz. that they reflect either informational advantages or familiarity bias. The database allows lookthrough handling of investments via mutual funds and the like, and reveals that home bias is smaller than usually believed. We find that both home bias and foreign bias are positively associated with the Cremers and Petajisto (2009) ActiveShare measure and negatively with the fraction of the country sub-portfolio invested via mutual funds, both of which are consistent with information effects rather than familiarity bias. Again consistent with the information hypothesis, we further find a positive relationship between excess returns and ActiveShare, as well as higher expected returns when foreign bias is positive rather than negative. Given the investor's place of residence, nationality has no impact, so portfolios per nationality group within a country provide additional test material. Keywords: International portfolio choice; home bias; foreign bias; informational advantage; familiarity; behavioral economics; active share (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:742 Access Statistics for this paper More papers in Working Papers from DNB Contact information at EDIRC. |
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