Equity home bias—A global perspective from the shrunk frontier

Raja Mukherjee; Satya Paul; Sriram Shankar

doi:10.1016/j.eap.2017.10.003

Equity home bias—A global perspective from the shrunk frontier

Raja Mukherjee, Satya Paul, Sriram Shankar^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-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 language	English
Pages (from-to)	9-21
Number of pages	13
Journal	Economic Analysis and Policy
Volume	57
DOIs	https://doi.org/10.1016/j.eap.2017.10.003
Publication status	Published - Mar 2018

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title = "Equity home bias—A global perspective from the shrunk frontier",

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.",

keywords = "Bayes–Stein shrinkage, Equity home bias, Equity investment, GMM estimation, Optimal investment weights",

author = "Raja Mukherjee and Satya Paul and Sriram Shankar",

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AU - Paul, Satya

AU - Shankar, Sriram

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AB - 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.

KW - Bayes–Stein shrinkage

KW - Equity home bias

KW - Equity investment

KW - GMM estimation

KW - Optimal investment weights

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VL - 57

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JO - Economic Analysis and Policy

JF - Economic Analysis and Policy

ER -

Equity home bias—A global perspective from the shrunk frontier

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