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Determinants of foreign and domestic investment bias in global bond markets: Some empirical evidence

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  • Park, Donghyun
  • Taniguchi, Kiyoshi
  • Tian, Shu

Abstract

In this paper, we define foreign (domestic) bias as the deviation of foreign (domestic) investors’ actual portfolio allocation in a bond market from the same bond market’s weight in global bond market. We investigate the determinants of foreign and domestic investment bias in 41 global bond markets. Our evidence indicates that foreign investors significantly overweigh markets that offer better risk-return profiles. Such return driven behavior of foreign investors is especially pronounced in emerging bond markets. Foreign investors are also found to avoid volatility in highly controlled bond markets. Our evidence sheds some light on the importance of improving investor profile in emerging markets.

Suggested Citation

  • Park, Donghyun & Taniguchi, Kiyoshi & Tian, Shu, 2019. "Determinants of foreign and domestic investment bias in global bond markets: Some empirical evidence," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 287-303.
    • Handle: RePEc:eee:ecofin:v:49:y:2019:i:c:p:287-303
    DOI: 10.1016/j.najef.2019.04.012
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    2. Hiroya Tanaka & Keiichi Hori & Akihisa Shibata, 2024. "Search-for-Yield and Home Bias under Quantitative Easing," KIER Working Papers 1106, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    Bond market; Portfolio decisions; Investor base; Home bias; Foreign bias;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • F30 - International Economics - - International Finance - - - General

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