An Empirical Validation of a Home Bias Model

Authors

  • Islem Boutabba

Keywords:

portfolio consisting of US MNCs, we conducted correlation, cointegration and bivariate Granger causality tests

Abstract

To study world equity markets indices and their corresponding relationship with a portfolio consisting of U S MNCs we conducted correlation cointegration and bivariate Granger causality tests Using daily returns of the past five years we have concluded that the inclusion of foreign equities increases returns of a diversified home portfolio From the cointegration tests we concluded that there is no long-term equilibrium relationship between the U S indices and the selected foreign indices Finally correlation tests led us to conclude that U S MNCs do not follow foreign indices in terms of returns In summary our empirical analysis suggests that U S investors should diversify their portfolios by including home equities traded abroad selected in developed and emerging markets This result corroborates that of Salehizadeh 2003 Since U S MNCs could not substitute indices returns home bias problem will continue to exist because on the one hand foreign investment has risks that are absent in home portfolios and on the other hand U S institutional investors have an information advantage as well as higher international returns

How to Cite

Islem Boutabba. (2015). An Empirical Validation of a Home Bias Model. Global Journal of Human-Social Science, 15(H4), 17–22. Retrieved from https://socialscienceresearch.org/index.php/GJHSS/article/view/1488

An Empirical Validation of a Home Bias Model

Published

2015-03-15