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Bond and Equity Home Bias and Foreign Bias: an International Study

Author

Listed:
  • VanPée, Rosanne

    (Hogeschool-Universiteit Brussel (HUB), KULeuven)

  • De Moor, Lieven

    (Hogeschool-Universiteit Brussel (HUB), KULeuven)

Abstract
In this paper we explore tentatively and formally the differences between bond and equity home bias and foreign bias based on one large scale dataset including developed and emerging markets for the period 2001 to 2010. We set the stage by tentatively and formally linking the diversion of bond and equity home bias in OECD countries to the increasing public debt issues under the form of government bonds i.e. the supply-driven argument. Unlike Fidora et al. (2007) we do not find that exchange rate volatility has a greater impact on bond home bias than on equity home bias. We find, instead, that exchange rate volatility has a greater impact on bond foreign bias than on equity foreign bias. We also show that the level of financial development is more important for attracting foreign bond investors than foreign equity investors; and country and corporate governance practices matter more for international equity portfolios than for international bond portfolios. Besides variables being significantly more, less or incompatibly important for bond versus equity home and foreign bias, we also find variables exclusively significant for bonds. Above all this paper points out the distinct nature of bond home and foreign bias versus equities and, therefore, stimulates further research on bond home and foreign bias despite the large amount of existing literature on equity home bias.

Suggested Citation

  • VanPée, Rosanne & De Moor, Lieven, 2012. "Bond and Equity Home Bias and Foreign Bias: an International Study," Working Papers 2012/24, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    • Handle: RePEc:hub:wpecon:201224
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    File URL: https://lirias.hubrussel.be/bitstream/123456789/6213/1/12HRP24.pdf
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    Citations

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    Cited by:

    1. G. Andrew Karolyi & David T. Ng & Eswar S. Prasad, 2013. "The Coming Wave," Working Papers 082013, Hong Kong Institute for Monetary Research.
    2. Gajewski, Krzysztof & Olszewski, Krzysztof & Pawłowska, Małgorzata & Rogowski, Wojciech & Tchorek, Grzegorz & Zięba, Jolanta, 2012. "Integracja finansowa w Europie po wprowadzeniu euro. Przegląd literatury [Financial integration in Europe after the introduction of the euro. A literature overview]," MPRA Paper 42482, University Library of Munich, Germany.
    3. Eichler, Stefan & Plaga, Timo, 2017. "The political determinants of government bond holdings," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 1-21.
    4. Michele Manna & Stefano Nobili, 2023. "Banks' holdings of and trading in government bonds," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 257-283, January.
    5. Joan Muysken & Thomas Ziesemer, 2014. "The Effect of Immigration on Economic Growth in an Ageing Economy," Bulletin of Applied Economics, Risk Market Journals, vol. 1(1), pages 35-63.
    6. Pavlo Dziuba & Darya Glukhova & Kyryl Shtogrin, 2022. "Risk, Return And International Portfolio Diversification: K-Means Clustering Data," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 8(3).
    7. Drobetz, Wolfgang & Mönkemeyer, Marwin & Requejo, Ignacio & Schröder, Henning, 2023. "Foreign bias in institutional portfolio allocation: The role of social trust," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 233-269.
    8. Levy, Haim & Levy, Moshe, 2014. "The home bias is here to stay," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 29-40.

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