Bond and Equity Home Bias and Foreign Bias: an International Study

Rosanne Vanpée () and Lieven De Moor ()
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Rosanne Vanpée: Hogeschool-Universiteit Brussel (HUB), KULeuven
Lieven De Moor: Hogeschool-Universiteit Brussel (HUB), KULeuven

No 2012/24, Working Papers from Hogeschool-Universiteit Brussel, Faculteit Economie en Management

Abstract: In this paper we explore tentatively and formally the differences between bond and equity home bias and foreign bias based on one large scale dataset including developed and emerging markets for the period 2001 to 2010. We set the stage by tentatively and formally linking the diversion of bond and equity home bias in OECD countries to the increasing public debt issues under the form of government bonds i.e. the supply-driven argument. Unlike Fidora et al. (2007) we do not find that exchange rate volatility has a greater impact on bond home bias than on equity home bias. We find, instead, that exchange rate volatility has a greater impact on bond foreign bias than on equity foreign bias. We also show that the level of financial development is more important for attracting foreign bond investors than foreign equity investors; and country and corporate governance practices matter more for international equity portfolios than for international bond portfolios. Besides variables being significantly more, less or incompatibly important for bond versus equity home and foreign bias, we also find variables exclusively significant for bonds. Above all this paper points out the distinct nature of bond home and foreign bias versus equities and, therefore, stimulates further research on bond home and foreign bias despite the large amount of existing literature on equity home bias.

Pages: 35 page
Date: 2012-05
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Citations: View citations in EconPapers (9)

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