A Return-Based Approach to Identify Home Bias of European Equity Funds PDF Download
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Author: Moritz Maier
Publisher:
ISBN:
Category :
Languages : en
Pages : 1
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Book Description
This paper introduces a return-based approach to studying a possible home bias of equity funds by estimating their exposures in their home countries. We first confirm the robustness of our approach using simulated portfolios with different proportions of domestic and foreign stocks. The empirical analysis examines equity funds domiciled in fifteen European countries that invest in European stocks. We examine individual funds as well as portfolios comprising funds that are all domiciled in a particular country. Our findings reveal that the portfolios of four domiciles show a significant home bias. Moreover, we observe that in seven domiciles more than one quarter of the individual funds are home-biased. These results are robust when controlling for fund-specific benchmarks or for the average country exposures of all funds in our final sample. Finally, a home bias of individual funds is not related to superior performance, but actually results in higher investment risk consistent with underdiversification.
Author: Moritz Maier
Publisher:
ISBN:
Category :
Languages : en
Pages : 1
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Book Description
This paper introduces a return-based approach to studying a possible home bias of equity funds by estimating their exposures in their home countries. We first confirm the robustness of our approach using simulated portfolios with different proportions of domestic and foreign stocks. The empirical analysis examines equity funds domiciled in fifteen European countries that invest in European stocks. We examine individual funds as well as portfolios comprising funds that are all domiciled in a particular country. Our findings reveal that the portfolios of four domiciles show a significant home bias. Moreover, we observe that in seven domiciles more than one quarter of the individual funds are home-biased. These results are robust when controlling for fund-specific benchmarks or for the average country exposures of all funds in our final sample. Finally, a home bias of individual funds is not related to superior performance, but actually results in higher investment risk consistent with underdiversification.
Author: Moritz Maier
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
This paper analyzes determinants of home bias in equity funds based on monthly holdings data using panel and quantile regressions. We investigate 699 equity funds, domiciled in fifteen European countries, that broadly invested in European stocks from January 2003 to December 2016. More than ninety percent of our sample funds show, on average, a home bias. In addition, the home bias across funds is quite stable over time. Analyzing the determinants of this home bias, our empirical results from panel regressions indicate that macroeconomic development, stock market development and fund-specific characteristics have, on average, a significant influence on the home bias of individual funds. Applying quantile regressions, we find the effects of several determinants, such as real growth in the gross domestic product, past excess return of the domestic stock market or number of stocks held by funds to be clearly related to the funds' level of home bias. Further analyses of subportfolios of funds show that informational advantages do not seem to be a reason for the observed home bias.
Author: Hossein Asgharian
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
The home bias is defined as the tendency of the investors to invest a larger proportion of their wealth in domestic equities than what would be optimal based on the meanvariance principle. There are several explanations for this observed home bias, e.g., barriers to foreign investments and information asymmetry. From a Bayesian viewpoint the level of the investors' prior mistrust in a certain asset-pricing model may explain the home bias, despite the fact that statistical tests fail in rejecting the model. The purpose is to analyze how fragile the investors' prior confidence in ICAPM (International Capital Asset Pricing Model) must be to cause home bias in European equity markets. We use a Bayesian approach to estimate the predictive distribution of the asset returns for each European country under different prior scenarios. The investors' optimal portfolio weights are constructed from the moments of this predictive distribution. The result shows that there is a strong home bias in most countries, which cannot be explained by any degree of disbelief in the ICAPM. The losses due to the holdings of inefficient portfolios by pension funds are assessed via certainty equivalent calculations. Italian pension funds suffer more than the funds of the other countries from the home bias while UK and the Netherlands experience very small losses.
Author: Ian Cooper
Publisher:
ISBN: 9781601987631
Category : International finance
Languages : en
Pages : 133
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Book Description
Home bias - the empirical phenomenon that investors assign anomalously high weights to their own domestic assets - has puzzled academics for decades: financial theory predicts that an internationally well diversified portfolio of stocks and short-term bonds can reduce risk significantly without affecting expected return. Although the globalization of international equity markets has increased international investments, equity portfolios remain severely home biased today, and no single explanation seems to solve the puzzle completely. In this paper, we first provide a thorough description of the equity home bias phenomenon by defining, discussing, and applying the competing measures and presenting some estimates of the costs of under-diversification. Second, we evaluate the explanations for the equity home bias proposed in the literature such as information asymmetries, behavioral aspects, barriers to foreign investment, and governance issues, and conclude that each explanation on its own falls short, suggesting that the equity home bias probably reflects a combination of factors. Lastly, we review the implications of international under-diversification for portfolio formation and the cost of capital of companies.
Author: Fang Cai
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
It is an established fact that investors favor the familiar%u2014be it domestic securities or, within a country, the securities of nearby firms%u2014and avoid investments that would provide the greatest diversification benefits. While we do not rule out familiarity as an important driver of portfolio allocations, we provide new evidence of investors%u2019 international diversification motive. In particular, our analysis of the security-level U.S. equity holdings of foreign and domestic institutional investors indicates that institutional investors reveal a preference for domestic multinationals (MNCs), even after controlling for familiarity factors. We attribute this revealed preference to the desire to obtain %u201Csafe%u201D international diversification. We then show that holdings of domestic MNCs are substantial and, after accounting for this home-grown foreign exposure, that the share of %u201Cforeign%u201D equities in investors%u2019 portfolios roughly doubles, reducing (but not eliminating) the observed home bias.
Author: Jennifer Schneider
Publisher: Peter Lang Gmbh, Internationaler Verlag Der Wissenschaften
ISBN: 9783631639740
Category : Business & Economics
Languages : en
Pages : 218
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Book Description
Is the euro area getting closer with regard to business cycles? The study investigates the linkage between business cycle convergence and financial portfolio choice for a panel of 18 European countries. For this purpose an index is constructed which measures the similarity of investment portfolios. The idea is that financial portfolio choice has an impact on business cycles and contributes to convergence via the consumption-wealth linkage. The background of the analysis is the International Asset Pricing Model (IAPM). The results of fixed effects GMM TSLS estimations confirm the linkage. The effect is higher for country-pairs that are built by one euro area member and one member outside the euro area.
Author: Martin Feldstein
Publisher: University of Chicago Press
ISBN: 0226241807
Category : Business & Economics
Languages : en
Pages : 500
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Book Description
Recent changes in technology, along with the opening up of many regions previously closed to investment, have led to explosive growth in the international movement of capital. Flows from foreign direct investment and debt and equity financing can bring countries substantial gains by augmenting local savings and by improving technology and incentives. Investing companies acquire market access, lower cost inputs, and opportunities for profitable introductions of production methods in the countries where they invest. But, as was underscored recently by the economic and financial crises in several Asian countries, capital flows can also bring risks. Although there is no simple explanation of the currency crisis in Asia, it is clear that fixed exchange rates and chronic deficits increased the likelihood of a breakdown. Similarly, during the 1970s, the United States and other industrial countries loaned OPEC surpluses to borrowers in Latin America. But when the U.S. Federal Reserve raised interest rates to control soaring inflation, the result was a widespread debt moratorium in Latin America as many countries throughout the region struggled to pay the high interest on their foreign loans. International Capital Flows contains recent work by eminent scholars and practitioners on the experience of capital flows to Latin America, Asia, and eastern Europe. These papers discuss the role of banks, equity markets, and foreign direct investment in international capital flows, and the risks that investors and others face with these transactions. By focusing on capital flows' productivity and determinants, and the policy issues they raise, this collection is a valuable resource for economists, policymakers, and financial market participants.
Author: Reena Aggarwal
Publisher: World Bank Publications
ISBN:
Category : Foreign exchange
Languages : en
Pages : 47
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Book Description
Author: Donald R. Chambers
Publisher: CFA Institute Research Foundation
ISBN: 1944960384
Category : Business & Economics
Languages : en
Pages : 122
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Book Description
Alternative Investments: A Primer for Investment Professionals provides an overview of alternative investments for institutional asset allocators and other overseers of portfolios containing both traditional and alternative assets. It is designed for those with substantial experience regarding traditional investments in stocks and bonds but limited familiarity regarding alternative assets, alternative strategies, and alternative portfolio management. The primer categorizes alternative assets into four groups: hedge funds, real assets, private equity, and structured products/derivatives. Real assets include vacant land, farmland, timber, infrastructure, intellectual property, commodities, and private real estate. For each group, the primer provides essential information about the characteristics, challenges, and purposes of these institutional-quality alternative assets in the context of a well-diversified institutional portfolio. Other topics addressed by this primer include tail risk, due diligence of the investment process and operations, measurement and management of risks and returns, setting return expectations, and portfolio construction. The primer concludes with a chapter on the case for investing in alternatives.
Author: Wesley R. Gray
Publisher: John Wiley & Sons
ISBN: 1118328078
Category : Business & Economics
Languages : en
Pages : 293
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Book Description
A must-read book on the quantitative value investment strategy Warren Buffett and Ed Thorp represent two spectrums of investing: one value driven, one quantitative. Where they align is in their belief that the market is beatable. This book seeks to take the best aspects of value investing and quantitative investing as disciplines and apply them to a completely unique approach to stock selection. Such an approach has several advantages over pure value or pure quantitative investing. This new investing strategy framed by the book is known as quantitative value, a superior, market-beating method to investing in stocks. Quantitative Value provides practical insights into an investment strategy that links the fundamental value investing philosophy of Warren Buffett with the quantitative value approach of Ed Thorp. It skillfully combines the best of Buffett and Ed Thorp—weaving their investment philosophies into a winning, market-beating investment strategy. First book to outline quantitative value strategies as they are practiced by actual market practitioners of the discipline Melds the probabilities and statistics used by quants such as Ed Thorp with the fundamental approaches to value investing as practiced by Warren Buffett and other leading value investors A companion Website contains supplementary material that allows you to learn in a hands-on fashion long after closing the book If you're looking to make the most of your time in today's markets, look no further than Quantitative Value.
