Abstract
This study finds strong evidence that home bias affects firm valuation at both country and firm levels. At the country level, increasing the bias of domestic investors toward home equity lowers the market valuation of home equity. At the firm level, firm value increases as the compositions of local equities held by domestic and foreign investors tend toward the firms' global market capitalization weights, but decreases as their weights deviate from global weights. Overall, the evidence is consistent with the optimal global risk-sharing hypothesis that the greater risk sharing between domestic and foreign investors in international capital markets reduces the cost of capital and hence enhances market valuation. © 2009 Elsevier B.V. All rights reserved.
| Original language | English |
|---|---|
| Pages (from-to) | 230-241 |
| Journal | Journal of International Economics |
| Volume | 78 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - Jul 2009 |
| Externally published | Yes |
Bibliographical note
Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].Funding
Chan acknowledges the financial support from Earmarked Grants of the Research Grants of Hong Kong (HKUST6474/06H). Covrig acknowledges the financial support from the Department of Finance at the California State University, Northridge.
Research Keywords
- Firm value
- Home bias
- Mutual funds
- Risk sharing
RGC Funding Information
- RGC-funded
Policy Impact
- Cited in Policy Documents
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