Foreign Investment in Emerging Markets: International Diversification or Familiarity Bias?

Liu, Yunxiao; Park, James L.; Sohn, Bumjean

doi:10.1080/1540496x.2017.1369403

Cited by 9 publications

(7 citation statements)

References 33 publications

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“…For institutional investors, stock ownership is negatively related to brand recognition and not brand quality. It differs from retail investors who have a positive relationship with brand recognition, which is consistent with comfort-seeking and familiarity (Liu et al, 2018;Parveen et al, 2020).…”

Section: The Familiarity Effectmentioning

confidence: 75%

The Gambler’s Fallacy, the Halo Effect, and the Familiarity Effect Based on Risk Profile: Bullish and Bearish Market in Indonesia Stock Exchange

Mahadwartha

Ismiyanti

Zunairoh

2023

GADJAH MADA INT. J. BUS.

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This study tests three behavioral biases: the gambler’s fallacy, the halo effect, and the familiarity effect. The novelty is the behavioral bias in bullish and bearish markets, based on different investors’ risk profiles. The questionnaire used a Likert scale. This study argues that bullish and bearish markets, and different risk profiles, affect investors’ behavioral bias. The gambler’s fallacy occurs when markets are bullish and partially when markets are bearish. The halo effect without risk profile does not occur in either market, and the familiarity effect occurs in both markets. Investors with a very conservative risk profile will experience behavioral bias, especially the gambler’s fallacy and the familiarity effect, with bullish and bearish markets. Investors with a conservative risk profile will partially experience the halo effect in bullish markets.

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Section: The Familiarity Effectmentioning

confidence: 75%

The Gambler’s Fallacy, the Halo Effect, and the Familiarity Effect Based on Risk Profile: Bullish and Bearish Market in Indonesia Stock Exchange

Mahadwartha

Ismiyanti

Zunairoh

2023

GADJAH MADA INT. J. BUS.

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“…Asset allocations in emerging markets and frontier markets enhance portfolio returns. Recently, Liu, Park, and Sohn (2018) diversification benefits in emerging markets still exist, especially during financial crises. Furthermore, OIC countries have a wide presence around the world and are represented by various regional bases.…”

Section: Managerial Implications and Recommendationsmentioning

confidence: 99%

Foreign Bias in the Global Portfolio Investment of Selected OIC Countries

Md Elias

2023

IMBR

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Home bias reflects the propensity of investors to invest substantially in the domestic market. When investing abroad investors exhibit foreign bias, a tendency to overweight certain foreign markets based on their preferences. A thorough review of the literature reveals that foreign bias has not been thoroughly investigated in emerging countries, especially in the context of OIC countries. The purpose of this research is to examine the determinants of foreign bias in the global portfolio investment of selected OIC countries. An unbalanced bilateral panel data of 12 OIC countries’ outward equity investment in 74 host countries from the year 2001 to 2016 is analyzed. Cross-sectional analysis shows that OIC countries exhibit higher foreign bias towards their OIC counterparts especially in the MENA region. The results suggest, OIC countries not only exhibit foreign bias but also demonstrate regional bias. System Generalized Method of Moments (GMM) empirically shows that foreign bias is possibly explained by factors related to financial market openness, familiarity, information asymmetry, and global financial crisis. This study has a significant implication for the investors, fund managers and the regulators of the OIC countries. Investors and fund managers in OIC countries should be aware of the existence of foreign bias in their global portfolio investment that may potentially reduce the benefits of optimal diversification. It is a call for policymakers in the OIC countries to convince their local investors that international portfolio diversification offers risk sharing and eventually increases investment return.

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“…The key biases they discuss are overconfidence, trust and control, disposition, mental accounting, heuristics, self-control and framing, familiarity, risk-taking behaviour and anchoring. Familiarity bias is also discussed by Dong et al (2021) and Liu et al (2018). Although investors cannot avoid all behavioural biases, they can avoid investment losses by acknowledging such biases and taking them into consideration when making investment decision.…”

Section: Investment Decisionsmentioning

confidence: 99%

Investigation of Gender Differences in Familiar Portfolio Choice

Maknickienė

Rapkevičiūtė²

2022

Journal of Business Economics and Management

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The prevailing assumption holds that investors include in their portfolios securities that they know well, are located near their place of residence, or align with their fields of interest. This article analyse familiarity in investment through gender perspective and their fields of interest. Women and men field of interest is defined by enabling online magazines’ article’s themes. The aim of this paper is to investigate gender-based behavioural differences in investment decisions – i.e. to define women’s and men’s fields of interests and value investment portfolios. Portfolios differ according to whether they are formed from securities that are consistent with women’s fields of interest, men’s fields of interest or both women’s and men’s fields of interest. Textual analysis was employed to identify men’s and women’s fields of interest. Investment portfolios were built using mean variance (MV) and Black–Litterman (BL) models. The analysis revealed that portfolios built from men’s fields of interests are more diversified than are portfolios built either from women’s fields of interests or from both men’s and women’s fields of interest. Analysing 12 portfolios’ efficiency revealed that women’s portfolio returns are more stable than are men’s. Moreover, the study demonstrated that time impacts investment portfolio returns to a greater extent than do gendered fields of interest. The article complements the existing knowledge about bias in investor familiarity, which results from differences in men’s and women’s fields of interest.

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Foreign Investment in Emerging Markets: International Diversification or Familiarity Bias?

Cited by 9 publications

References 33 publications

The Gambler’s Fallacy, the Halo Effect, and the Familiarity Effect Based on Risk Profile: Bullish and Bearish Market in Indonesia Stock Exchange

The Gambler’s Fallacy, the Halo Effect, and the Familiarity Effect Based on Risk Profile: Bullish and Bearish Market in Indonesia Stock Exchange

Foreign Bias in the Global Portfolio Investment of Selected OIC Countries

Investigation of Gender Differences in Familiar Portfolio Choice

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