International investors' home bias in portfolio equity investment

Abstract

This paper utilizes International Monetary Fund’s high quality dataset over the period from 2001 to 2004, to investigate the determinants of home bias in the international context. This paper contributes to the existing literature by using float adjusted measure of home bias for 38 countries. Information asymmetries arising due to countries’ regulatory and legal environment have significant impact on home bias.Foreign listing is found to alleviate home bias. International investors exhibit a preference for nearby and same language countries.Capital controls, trade links and risk adjusted returns are found to significantly affect equity home bias. Transaction costs do not have a significant impact on the equity home bias.