Suchergebnisse

AbstractThe paper uses various approaches: capital asset pricing, mean‐variance, global minimum‐variance, Bayes‐Stein, Bayesian and multi‐prior to develop foreign equity bias measures for Australia's international equity holdings in 41 countries, over the period 2001 to 2012. Bayesian models allow for various degrees of mis‐trust in the ICAPM model. Multi‐Prior restricts the expected return for each asset to lie within specified confidence interval around its estimated value. Mean‐Variance computes optimal weights by sample estimates of mean and covariance matrix of sample return. Bayes‐Stein shrinks each asset's historical mean return toward the return of the minimum variance portfolio and improves precision associated with estimating the expected return of each asset. The plausible sources of foreign equity bias are trade, GDP per capita, real GDP growth rate, exchange rate volatility, tax credit, stock market development, familiarity and institution variables. The paper finds that economic cost of the observed foreign bias is low. The paper analyses correlation effect on the foreign bias and finds that economic loss decreases with an increase in correlation.

This paper constructs the float adjusted measure of home bias and explores the determinants of bond home bias by employing the International Monetary Fund's high quality dataset (2001 to 2009) on cross-border bond investment. The paper finds that Australian investors' prefer investing in countries with higher economic development and more developed bond markets. Exchange rate volatility appears to be an impediment for cross-border bond investment. Investors prefer investing in countries with stronger quality of institutions including bureaucratic quality, government effectiveness, regulatory quality, rule of law, efficiency of judicial system, risk of contract repudiation, and rating of accounting standards.