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Essays on International Portfolio Diversification

Abstract : The persistence of home bias despite the gains from international diversification and the lifting of explicit barriers to cross-border investments, is an important concern for researchers in finance. While home bias is well documented, relatively little is known on the geography of investors’ existing foreign holdings. This thesis is motivated by the idea that examining the patterns of bilateral portfolio holdings would enhance our understanding of the limitations to the global financial integration and the sources of the actual segmentation across financial markets. The main results are as follows. First, beside the well-known home country bias, investors shrink geographically their existing foreign assets as they only consider a few number of destinations located nearby. Thus, physical distance and bilateral market correlations are important covariates to explain the geography of bilateral holdings in contrast to the traditional mean-variance paradigm. Second, home bias is particularly high among investors in countries with smaller capital markets although international diversification is potentially more beneficial to this group of countries compared to developed ones. Third, the actual segmentation across international capital markets and the puzzling effect of the physical distance on the geography of international portfolio investments can be mostly attributed to information asymmetries between local and foreign investors.
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Contributor : Erkin Diyarbakirlioglu Connect in order to contact the contributor
Submitted on : Friday, April 15, 2022 - 9:56:33 AM
Last modification on : Thursday, May 19, 2022 - 4:01:54 PM


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Erkin Diyarbakirlioglu. Essays on International Portfolio Diversification. Business administration. Université Paris 1 Panthéon Sorbonne, 2010. English. ⟨tel-03642447⟩



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