Home bias and high turnover

A rational explanation for home country bias

“…Griffin (1997) reports that the typical pension and insurance portfolio appears to be sub-optimal due to a high concentration of domestic securities and that measuring portfolio risk relative to liabilities still validates the presence of strong home country bias. Tesar and Werner (1995) examine the long-term investment patterns of five major OECD countries by using a larger data set than that of French and Poterba (1991). Their findings confirm the evidence of the home country bias.…”

“…French and Poterba (1991) suggest that in order for this bias to be justified, investors must hold optimistic expectations about their domestic markets and pessimistic expectations about their foreign markets. Tesar and Werner (1995) find existing explanations to the home equity bias unsatisfactory and conclude that the issue poses a challenge for portfolio theory. We develop a model that incorporates both the foregone gains from diversification and the informational constraints of international investing, and shows that home equity bias is consistent with rational mean-variance portfolio choice.…”

What's in a Name? An Experimental Examination of Investment Behavior

“…French and Poterba (1991) report little cross-border diversification with investors in the United States holding 94 percent of their assets in U.S. securities. Kang and Stulz (1997) and Tesar and Werner (1995) provide evidence that the preference for domestic equity holdings is an international phenomenon. Recent evidence suggests that home bias is even localized.…”

“…The mystery intensifies when the importance of human capital is recognized, because investors should actually short sell domestic 2 securities (Baxter and Jermann 1997). Tesar and Werner (1995) conclude that a satisfactory explanation for home bias poses a serious challenge for portfolio theory.…”

Routes to equity market integration — the interplay between politicians, investors and managers

“…Black, 1974;Stapleton and Subrahmanyam, 1977;Errunza and Losq, 1985;Eun and Janakiramanan, 1986;Hietala, 1989), to home country preference bias (see e.g. French and Poterba, 1991;Cooper and Kaplanis, 1994;Tesar and Werner, 1995), to the international pricing of risks (see e.g. Jorion and Schwartz, 1986;Gultekin, Gultekin andPenati, 1989, Harvey, 1991;Dumas, 1994), to international asset pricing with extended APT (see.…”