NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Home Bias and the High Turnover

Linda L. Tesar, Ingrid M. Werner

NBER Working Paper No. 4218
Issued in November 1992
NBER Program(s):   IFM

This paper documents the available evidence on international portfolio investment in five GECD countries. We draw three conclusions from the data. First. there is strong evidence of a home bias in national investment portfolios despite the potential gains from international diversification. Second, to the extent investors hold international securities, the composition of the portfolio of foreign securities seems to reflect factors other than diversification of risk. Third, the high volume of cross-border capital flows and the high turnover rate on foreign equity investments relative to domestic equity markets suggests that transactions costs and incomplete information are unlikely to be important deterrents to international investment. These observations suggest that a richer set of models is required to account for international investment behavior.

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Document Object Identifier (DOI): 10.3386/w4218

Published: Journal of International Money and Finance, vol 14, no. 4, pp 467-492, 1995

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