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The determinants of home bias puzzle in equity portfolio investment in Australia

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  • Vo, Xuan Vinh

Abstract

Over the past decades, there is an increased trend in the international financial integration as countries are removing and relaxing controls on cross-border investment. Capital can flow easily to the destination that offers higher returns as the results of decreasing obstacles to international investment. However, despite well documented gains from international diversification, investors continue to have a strong preference for domestic assets. This paper characterizes the salient nature of the composition of the Australian equity portfolio investment. In addition, the paper investigates the determinants of the Australian investors’ home bias in equity portfolio investment. Employing the disaggregated data for the holding of Australian investors abroad from the Coordinated Portfolio Investment Survey (CPIS) conducted by IMF for the year 1997, 2001, 2002, 2003, 2004 and 2005, we provide an insight into the causes of the home bias puzzle by empirically analysing the role of explicit barriers to international investment (capital controls and transaction costs) and implicit barriers (governance and information asymmetries).

Suggested Citation

  • Vo, Xuan Vinh, 2008. "The determinants of home bias puzzle in equity portfolio investment in Australia," MPRA Paper 26982, University Library of Munich, Germany, revised 26 Jul 2009.
    • Handle: RePEc:pra:mprapa:26982
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    9. Curatola, Giuliano & Dergunov, Ilya, 2017. "International capital markets with time-varying preferences," SAFE Working Paper Series 176, Leibniz Institute for Financial Research SAFE.
    10. Syed Aliya Zahera & Rohit Bansal, 2018. "Do investors exhibit behavioral biases in investment decision making? A systematic review," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 10(2), pages 210-251, May.
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    More about this item

    Keywords

    home bias; portfolio equity investment; transaction costs; volatility; liquidity;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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