Journal of Banking & Finance Vol. 47 2014
The home bias is here to stay
Abstract
Over the last 15years, 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.
- DOI
- 10.1016/j.jbankfin.2014.06.020
- Volume
- 47
- Pages
- 29-40
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref