International equity portfolio allocations and stock market development

Frank Obenpong Kwabi, Chandra Thapa, Krishna Paudyal, Suman Neupane

Research output: Contribution to journalArticle

Abstract

This paper examines whether the widely reported phenomena of home and foreign biases (i.e. sub-optimal international equity portfolio diversification) hold any ramifications for the development of stock markets. The results, analysed using macro- and micro-level data, support the view that stock markets that are characterised by a higher degree of home bias are associated with lower levels of development. On the other hand, markets where foreign investors show a higher degree of allocation preference, relative to the prescribed benchmark (foreign bias), are found to be more developed. The results, which are robust to the use of shock based identification strategy, indicate that policy measures that promote optimal international equity portfolio diversification could be crucial in developing the depth and breadth of domestic stock markets.
LanguageEnglish
JournalReview of Quantitative Finance and Accounting
Publication statusAccepted/In press - 28 Jan 2019

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Equity
Stock market
Portfolio allocation
Stock market development
Portfolio diversification
Policy measures
Home bias
Benchmark
Foreign investors

Keywords

  • international equity portfolio diversification
  • equity foreign bias
  • equity home bias
  • market integration
  • stock market development

Cite this

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abstract = "This paper examines whether the widely reported phenomena of home and foreign biases (i.e. sub-optimal international equity portfolio diversification) hold any ramifications for the development of stock markets. The results, analysed using macro- and micro-level data, support the view that stock markets that are characterised by a higher degree of home bias are associated with lower levels of development. On the other hand, markets where foreign investors show a higher degree of allocation preference, relative to the prescribed benchmark (foreign bias), are found to be more developed. The results, which are robust to the use of shock based identification strategy, indicate that policy measures that promote optimal international equity portfolio diversification could be crucial in developing the depth and breadth of domestic stock markets.",
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International equity portfolio allocations and stock market development. / Kwabi, Frank Obenpong; Thapa, Chandra; Paudyal, Krishna; Neupane, Suman.

In: Review of Quantitative Finance and Accounting, 28.01.2019.

Research output: Contribution to journalArticle

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