Home bias in emerging bond and stock markets

Byoung Kim, Young Yun, Beom Cin, Young Jun Kim

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

In this paper, we empirically examine sizes and sources of home bias in both bond and equity markets for twenty emerging countries and twenty-two developed countries over the 2001-11 sample period. The average size of home bias in both bond and stock markets is found to be much larger in emerging countries than in developed countries. Using the explanatory variables in two categories of economic development and market performance, we employ dynamic panel data regression models to analyze major sources of home bias. The main results are the following: First, market performance factors generally affect home bias more strongly than do economic development factors. Second, market factors including market return, volatility, and liquidity support various hypotheses under informational asymmetries, such as return chasing, risk aversion, and flight to quality. Third, among macroeconomic factors, it is shown that real gross domestic product growth has negative effects and country leverage has positive effects on a specific home bias, backing up the size-bias and the flight-to-quality hypotheses, respectively. Finally, and perhaps most important in this paper, the effect of bond market performance on equity home bias is found to be significantly stronger than the effect of equity market performance on bond home bias from the market interaction model estimation, suggesting that a policy design needs to begin with increasing bond market efficiency to reduce equity market home bias.

Original languageEnglish
Pages (from-to)95-124
Number of pages30
JournalEmerging Markets Finance and Trade
Volume50
Issue number4
DOIs
Publication statusPublished - 2014 Jul 1

Fingerprint

Home bias
Stock market
Bond market
Market performance
Equity markets
Emerging countries
Economic development
Factors
Developed countries
Flight to quality
Gross domestic product
Market efficiency
Liquidity
Market factors
Leverage
Informational asymmetry
Dynamic panel data
Policy design
Return volatility
Equity home bias

Keywords

  • dynamic panel data regression models
  • flight to quality
  • home bias
  • informational asymmetries
  • return chasing

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Finance

Cite this

Home bias in emerging bond and stock markets. / Kim, Byoung; Yun, Young; Cin, Beom; Kim, Young Jun.

In: Emerging Markets Finance and Trade, Vol. 50, No. 4, 01.07.2014, p. 95-124.

Research output: Contribution to journalArticle

Kim, Byoung ; Yun, Young ; Cin, Beom ; Kim, Young Jun. / Home bias in emerging bond and stock markets. In: Emerging Markets Finance and Trade. 2014 ; Vol. 50, No. 4. pp. 95-124.
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