Equity home bias—a global perspective from the shrunk frontier

Raja Mukherjee, Satya Paul, Sriram Shankar

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

Equity home bias research explicates the need for correct characterisation of benchmark (optimum) foreign equity investment weights required for the estimation of equity home bias. This paper improves upon the traditional mean–variance optimisation framework by utilising the Bayes–Stein shrinkage technique to obtain optimal equity weights and home bias estimates for 39 countries for the period, 2000–2009. A regression model estimated with system GMM identifies financial integration, trade openness (exposure), stock market capitalisation, idiosyncratic risk and Global Financial Crisis (GFC) as the significant determinants of equity home bias. Unlike earlier studies, the relationship between home bias and financial integration is found to be U-shaped.

Original languageEnglish
Pages (from-to)9-21
Number of pages13
JournalEconomic Analysis and Policy
Volume57
DOIs
Publication statusPublished - Mar 2018
Externally publishedYes

Keywords

  • Bayes–Stein shrinkage
  • Equity home bias
  • Equity investment
  • GMM estimation
  • Optimal investment weights

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