TY - JOUR
T1 - The home bias is here to stay
AU - Levy, Haim
AU - Levy, Moshe
PY - 2014/10
Y1 - 2014/10
N2 - 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.
AB - 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.
KW - Home bias
KW - International diversification
KW - Portfolio optimization
UR - http://www.scopus.com/inward/record.url?scp=84904906892&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2014.06.020
DO - 10.1016/j.jbankfin.2014.06.020
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AN - SCOPUS:84904906892
SN - 0378-4266
VL - 47
SP - 29
EP - 40
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 1
ER -