Gorman, Larry R. and Jorgensen, Bjorn N. (2002) Domestic versus international portfolio selection: a statistical examination of the home bias. Multinational Finance Journal, 6 (3-4). pp. 131-166. ISSN 1069-1879
Full text not available from this repository.Abstract
The observed international home bias has traditionally been viewed as an anomaly. This paper provides statistical evidence contrary to this view within a mean-variance framework. Two methods of estimating the expected return and covariance parameters are investigated: (i) the traditional Markowitz approach, and (ii) the Bayes-Stein "shrinkage" algorithm. In-sample tests reveal that neither the Markowitz tangency allocation vectors nor the Bayes-Stein tangency allocation vectors are significantly different than a 100% domestic allocation (i.e. extreme home bias). These results are robust to the shorting of equity and across foreign exchange hedge strategies. The paper also reports out-of-sample tests with a view toward investment performance. Typically, a 100% domestic allocation outperforms both the Bayes-Stein and Markowitz tangency portfolios. Overall, the theorized gains to international diversification appear difficult to capture in practice and, hence, investors exhibiting a strong home bias are not necessarily acting irrationally.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.mfsociety.org/page.php?pageID=162 |
| Additional Information: | © 2002 Multinational Finance Society |
| Divisions: | Accounting |
| Subjects: | H Social Sciences > HG Finance |
| JEL classification: | F - International Economics > F3 - International Finance G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets |
| Date Deposited: | 28 Aug 2013 09:08 |
| Last Modified: | 11 Dec 2024 22:33 |
| URI: | http://eprints.lse.ac.uk/id/eprint/52122 |
Actions (login required)
 |
View Item |
