The home bias is here to stay

Haim Levy, Moshe Levy*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

Abstract

Over the last 15. years, 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.

Original languageAmerican English
Pages (from-to)29-40
Number of pages12
JournalJournal of Banking and Finance
Volume47
Issue number1
DOIs
StatePublished - Oct 2014

Keywords

  • Home bias
  • International diversification
  • Portfolio optimization

Fingerprint

Dive into the research topics of 'The home bias is here to stay'. Together they form a unique fingerprint.

Cite this