International Portfolio Formation, Skewness and the Role of Gold

2003 ◽  
Author(s):  
Brian M. Lucey ◽  
Edel Tully
Keyword(s):  
International Portfolio

Confidence in the Familiar: An International Perspective

2004 ◽  
Vol 39 (1) ◽  
pp. 47-68 ◽  
Author(s):  
Kai Li
Keyword(s):  
Foreign Investment ◽  
Asset Allocation ◽  
Home Bias ◽  
International Perspective ◽  
Expected Returns ◽  
Investment Risk ◽  
Prior Beliefs ◽  
International Portfolio ◽  
Home Bias Puzzle

AbstractOne striking feature of international portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor—the home bias puzzle. I examine the role of investors' perception of foreign investment risk on their portfolio choices. The expected returns and risk of foreign investment are specified through an asset pricing model with the home portfolio being the benchmark asset—Pastor's (2000) domestic CAPM. The model serves as a reference point around which investors can center their prior beliefs. I focus on investors' prior beliefs that are consistent with the literature on confidence in the familiar—foreign equities, in terms of both expected returns and risk, being viewed less favorably than domestic equities. These prior beliefs are then combined with the data on G7 equities, and the revised beliefs are used to obtain the global optimal asset allocation. To hold predominantly domestic equities, each G7 investor has to believe that the risk of foreign investment is several times higher than the actual risk. The home bias is more of a puzzle for a U.S. investor during the 1970s. Specifying investors' prior beliefs around the world CAPM does not help resolve the puzzle.

Familiarity Breeds Investment: Diaspora Networks and International Investment

2010 ◽  
Vol 104 (3) ◽  
pp. 584-600 ◽  
Author(s):  
DAVID LEBLANG
Keyword(s):  
Direct Investment ◽  
Home Country ◽  
International Investment ◽  
Information Costs ◽  
Cross Sectional ◽  
Cross Border ◽  
International Portfolio ◽  
Diaspora Networks ◽  
Cross National

What explains cross-national patterns of international portfolio and foreign direct investment (FDI)? While existing explanations focus on the credibility of a policy maker's commitment, we emphasize the role of diaspora networks. We hypothesize that diaspora networks—connections between migrants residing in investing countries and their home country—influence global investment by reducing transaction and information costs. This hypothesis is tested using dyadic cross-sectional data for both portfolio and FDI. The findings indicate that even after controlling for a multitude of factors, disapora networks have both a substantively significant effect and a statistically significant effect on cross-border investment.

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