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Home bias and high turnover

Author

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  • Tesar, Linda L.
  • Werner, Ingrid M.
Abstract
This paper documents the available evidence on international portfolio investment in five GECD countries. We draw three conclusions from the data. First. there is strong evidence of a home bias in national investment portfolios despite the potential gains from international diversification. Second, to the extent investors hold international securities, the composition of the portfolio of foreign securities seems to reflect factors other than diversification of risk. Third, the high volume of cross-border capital flows and the high turnover rate on foreign equity investments relative to domestic equity markets suggests that transactions costs and incomplete information are unlikely to be important deterrents to international investment. These observations suggest that a richer set of models is required to account for international investment behavior.
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Suggested Citation

  • Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
    • Handle: RePEc:eee:jimfin:v:14:y:1995:i:4:p:467-492
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    1. Charles M. Engel, 1994. "Tests of CAPM on an International Portfolio of Bonds and Stocks," NBER Chapters, in: The Internationalization of Equity Markets, pages 149-183, National Bureau of Economic Research, Inc.
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    6. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
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