IDEAS home Printed from https://ideas.repec.org/a/vrs/subboe/v68y2023i2p1-16n3.html
   My bibliography  Save this article

The Nexus Between Foreign Portfolio Diversification and Kinship

Author

Listed:
  • Socaciu Erzsébet-Mirjám

    (Babeș-Bolyai University, Romania)

Abstract

This study seeks to understand the effect of kinship tightness of a society on foreign portfolio diversification. Using data for 42 home investor countries and 44 destination countries for the period of 2004-2021, it is found that investors from more tight-knit kinship societies tend to have smaller proportion of equities invested abroad, thus holding sub-diversified portfolios. The enforcement of these tight kinship societies is based on shame and communal values fostering local monitoring practices which leads to the absence of cooperation and trust, thus reducing stock market participation. It is further shown that kinship tightness can be shaped by enhanced financial literacy, which in turn fosters international diversification. On the other hand, loose kinship societies can be viewed as trust-promoting alternative mechanisms where formal institutions are less effective.

Suggested Citation

  • Socaciu Erzsébet-Mirjám, 2023. "The Nexus Between Foreign Portfolio Diversification and Kinship," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 68(2), pages 1-16, August.
    • Handle: RePEc:vrs:subboe:v:68:y:2023:i:2:p:1-16:n:3
    DOI: 10.2478/subboec-2023-0006
    as

    Download full text from publisher

    File URL: https://doi.org/10.2478/subboec-2023-0006
    Download Restriction: no
    File URL: https://libkey.io/10.2478/subboec-2023-0006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    2. Hubert Dichtl & Wolfgang Drobetz & Viktoria‐Sophie Wendt, 2021. "How to build a factor portfolio: Does the allocation strategy matter?," European Financial Management, European Financial Management Association, vol. 27(1), pages 20-58, January.
    3. Hastings, Justine & Mitchell, Olivia S., 2020. "How financial literacy and impatience shape retirement wealth and investment behaviors," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(1), pages 1-20, January.
    4. Paola Giuliano & Nathan Nunn, 2013. "The Transmission of Democracy: From the Village to the Nation-State," American Economic Review, American Economic Association, vol. 103(3), pages 86-92, May.
    5. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
    6. Luigi Guiso & Michael Haliassos & Tullio Jappelli, 2003. "Household stockholding in Europe: where do we stand and where do we go? [‘Limited market participation and volatility of assets prices’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(36), pages 123-170.
    7. Enrico Spolaore & Romain Wacziarg, 2009. "The Diffusion of Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 469-529.
    8. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
    9. Dahlquist, Magnus & Pinkowitz, Lee & Stulz, René M. & Williamson, Rohan, 2003. "Corporate Governance and the Home Bias," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 87-110, March.
    10. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    11. Andrés Fernández & Michael W Klein & Alessandro Rebucci & Martin Schindler & Martín Uribe, 2016. "Capital Control Measures: A New Dataset," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 548-574, August.
    12. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
    13. Cox, Donald & Fafchamps, Marcel, 2008. "Extended Family and Kinship Networks: Economic Insights and Evolutionary Directions," Handbook of Development Economics, in: T. Paul Schultz & John A. Strauss (ed.), Handbook of Development Economics, edition 1, volume 4, chapter 58, pages 3711-3784, Elsevier.
    14. Benjamin Enke, 2019. "Kinship, Cooperation, and the Evolution of Moral Systems," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 953-1019.
    15. Beugelsdijk, Sjoerd & Frijns, Bart, 2010. "A cultural explanation of the foreign bias in international asset allocation," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2121-2131, September.
    16. Simcha Ronen & Oded Shenkar, 2013. "Mapping world cultures: Cluster formation, sources and implications," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(9), pages 867-897, December.
    17. Leora Klapper & Annamaria Lusardi, 2020. "Financial literacy and financial resilience: Evidence from around the world," Financial Management, Financial Management Association International, vol. 49(3), pages 589-614, September.
    18. repec:dau:papers:123456789/4392 is not listed on IDEAS
    19. Karolyi, G. Andrew & Ng, David T. & Prasad, Eswar S., 2020. "The Coming Wave: Where Do Emerging Market Investors Put Their Money?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(4), pages 1369-1414, June.
    20. repec:dau:papers:123456789/10840 is not listed on IDEAS
    21. Siegel, Jordan I. & Licht, Amir N. & Schwartz, Shalom H., 2011. "Egalitarianism and international investment," Journal of Financial Economics, Elsevier, vol. 102(3), pages 621-642.
    22. Marcel Fafchamps & Flore Gubert, 2007. "Risk Sharing and Network Formation," American Economic Review, American Economic Association, vol. 97(2), pages 75-79, May.
    23. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, June.
    24. Driessen, Joost & Laeven, Luc, 2007. "International portfolio diversification benefits: Cross-country evidence from a local perspective," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1693-1712, June.
    25. Niu, Geng & Wang, Qi & Li, Han & Zhou, Yang, 2020. "Number of brothers, risk sharing, and stock market participation," Journal of Banking & Finance, Elsevier, vol. 113(C).
    26. Poshakwale, Sunil S. & Thapa, Chandra, 2011. "Investor protection and international equity portfolio investments," Global Finance Journal, Elsevier, vol. 22(2), pages 116-129.
    27. Anderson, Christopher W. & Fedenia, Mark & Hirschey, Mark & Skiba, Hilla, 2011. "Cultural influences on home bias and international diversification by institutional investors," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 916-934, April.
    28. Frank O. Kwabi & Agyenim Boateng, 2021. "The effect of insider trading laws and enforcement on stock market transaction cost," Review of Quantitative Finance and Accounting, Springer, vol. 56(3), pages 939-964, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Junyong Lee & Kyounghun Lee & Frederick Dongchuhl Oh, 2023. "Religion and Equity Home Bias," Open Economies Review, Springer, vol. 34(5), pages 1015-1038, November.
    2. Karolyi, G. Andrew, 2016. "The gravity of culture for finance," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 610-625.
    3. Giofré, Maela, 2017. "Financial education, investor protection and international portfolio diversification," Journal of International Money and Finance, Elsevier, vol. 71(C), pages 111-139.
    4. Lee, Junyong & Lee, Kyounghun & Oh, Frederick Dongchuhl, 2023. "International portfolio diversification and the home bias puzzle," Research in International Business and Finance, Elsevier, vol. 64(C).
    5. Li, Lu & Duan, Yang & He, Yuqian & Chan, Kam C., 2018. "Linguistic distance and mergers and acquisitions: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 81-102.
    6. Kwabi, Frank Obenpong & Boateng, Agyenim & Wonu, Chizindu & Kariuki, Charles & Du, Anna, 2023. "Political uncertainty and cross-border equity portfolio allocation decisions: International evidence," International Review of Financial Analysis, Elsevier, vol. 87(C).
    7. Baltzer, Markus & Stolper, Oscar & Walter, Andreas, 2013. "Is local bias a cross-border phenomenon? Evidence from individual investors’ international asset allocation," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2823-2835.
    8. Filatotchev, Igor & Bell, R. Greg & Rasheed, Abdul A., 2016. "Globalization of Capital Markets: Implications for Firm Strategies," Journal of International Management, Elsevier, vol. 22(3), pages 211-221.
    9. Niu, Geng & Wang, Qi & Li, Han & Zhou, Yang, 2020. "Number of brothers, risk sharing, and stock market participation," Journal of Banking & Finance, Elsevier, vol. 113(C).
    10. Giofré, Maela, 2013. "International diversification: Households versus institutional investors," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 145-176.
    11. Yong-Ho Cheon & Kuan-Hui Lee, 2018. "Maxing Out Globally: Individualism, Investor Attention, and the Cross Section of Expected Stock Returns," Management Science, INFORMS, vol. 64(12), pages 5807-5831, December.
    12. Zhang, John Fan & Wang, Yang & Du, Qingjie, 2024. "The impact of cultural distance on fund transfers in the internal capital market," Journal of Banking & Finance, Elsevier, vol. 165(C).
    13. Socaciu, Erzsébet-Mirjám & Nagy, Bálint-Zsolt & Benedek, Botond, 2023. "No place like home: Home bias and flight-to-quality in Group of Seven countries," Economic Modelling, Elsevier, vol. 129(C).
    14. Drobetz, Wolfgang & Mönkemeyer, Marwin & Requejo, Ignacio & Schröder, Henning, 2023. "Foreign bias in institutional portfolio allocation: The role of social trust," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 233-269.
    15. Giofré, Maela, 2014. "Domestic investor protection and foreign portfolio investment," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 355-371.
    16. Giofré, Maela, 2013. "Investor protection rights and foreign investment," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 506-526.
    17. Frijns, Bart & Gilbert, Aaron & Lehnert, Thorsten & Tourani-Rad, Alireza, 2013. "Uncertainty avoidance, risk tolerance and corporate takeover decisions," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2457-2471.
    18. Li, Donghui & Nguyen, Quang N. & Pham, Peter K. & Wei, Steven X., 2011. "Large Foreign Ownership and Firm-Level Stock Return Volatility in Emerging Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(4), pages 1127-1155, August.
    19. Bryan, Stephen & Nash, Robert & Patel, Ajay, 2015. "The effect of cultural distance on contracting decisions: The case of executive compensation," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 180-195.
    20. Giofré, Maela, 2021. "Stock exchange consolidation and cross-border investment: An empirical assessment," Journal of Financial Stability, Elsevier, vol. 53(C).

    More about this item

    Keywords

    international portfolio diversification; kinship; trust; financial literacy;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Z10 - Other Special Topics - - Cultural Economics - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:subboe:v:68:y:2023:i:2:p:1-16:n:3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sciendo.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.