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Suboptimal international equity portfolio diversification and stock market development

  • Frank O. KwabiEmail author
  • Chandra Thapa
  • Krishna Paudyal
  • Suman Neupane
Original Research
  • 9 Downloads

Abstract

This paper examines whether the widely reported phenomena of home and foreign biases (i.e. suboptimal international equity portfolio diversification) hold any ramifications for the development of stock markets. The results, analysed using macro- and micro-level data, support the view that stock markets that are characterised by a higher degree of home bias are associated with lower levels of development. On the other hand, markets where foreign investors show a higher degree of allocation preference, relative to the prescribed benchmark (foreign bias), are found to be more developed. The results, which are robust to the use of shock based identification strategy, indicate that policy measures that promote optimal international equity portfolio diversification could be crucial in developing the depth and breadth of domestic stock markets.

Keywords

International equity portfolio diversification Stock market development Equity home bias Equity foreign bias Shock based identification strategy 

JEL Classification

F3 G11 G14 

Notes

References

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Frank O. Kwabi
    • 1
    Email author
  • Chandra Thapa
    • 2
  • Krishna Paudyal
    • 2
  • Suman Neupane
    • 3
  1. 1.Department of Accounting and FinanceDe Montfort UniversityLeicesterUK
  2. 2.Department of Accounting and FinanceUniversity of StrathclydeGlasgowUK
  3. 3.UQ Business SchoolThe University of QueenslandBrisbaneAustralia

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