A Measure of Pure Home Bias. (19th March 2017)

• Record Type: Journal Article
• Authors: Cooper, Ian A; Sercu, Piet; Vanpée, Rosanne
• Is Part Of: Review of finance. Volume 22:Number 4(2018)
• Page Start: 1469
• Page End: 1514
• Publication Date: 2017-03-19
• Subjects: G15 -- G18 -- G30 -- G38 -- F3; Home bias -- Foreign bias -- Pure home bias -- Distance -- Deadweight costs -- Economic and financial development -- Reputation; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfx005
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: The literature on international equity holdings distinguishes between home bias (overweighting of home stocks) and foreign bias (relative underweighting for more "distant" countries). The two biases can be integrated into one distance-based model. We define pure home bias as the excess of home bias relative to this model, and find pure home bias only in emerging markets. Countries with high tax rates and low credit standing have higher pure home bias, and more development comes with lower distance aversion. Methodologically, the choice of portfolio bias measure matters. We find the best measure to be a covariance-based measure relative to the world average.