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The home bias is here to stay

Author

Listed:
  • Levy, Haim
  • Levy, Moshe

Abstract

Over the last 15years, dramatically decreasing foreign investment costs have not reduced the home bias. We show that the home bias induced by a given cost is proportional to the factor ρ/(1−ρ), where ρ is the average correlation between markets. This factor is very sensitive to the correlation, especially when the correlation is high. Empirically, correlations have been steadily increasing from 0.4 in the 90’s to about 0.9 today. Thus, the decreasing extra costs are increasingly magnified, explaining the persistence of the home bias, and predicting its continuation.

Suggested Citation

  • Levy, Haim & Levy, Moshe, 2014. "The home bias is here to stay," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 29-40.
    • Handle: RePEc:eee:jbfina:v:47:y:2014:i:c:p:29-40
    DOI: 10.1016/j.jbankfin.2014.06.020
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    More about this item

    Keywords

    Home bias; International diversification; Portfolio optimization;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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