Sub-optimal international portfolio allocations and cost of capital
Kwabi, Frank and Faff, Robert and Marshall, Andrew and Thapa, Chandra (2016) Sub-optimal international portfolio allocations and cost of capital. Journal of Multinational Financial Management, 35. pp. 41-58. ISSN 1042-444X
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Abstract
Finance theory suggests that the sub-optimal international portfolio investment bias of home and foreign investors should affect the cost of capital of a country through its influence on the degree of international market integration/segmentation. Using four unique proxies of aggregate market level cost of capital measures and three different measures of sub-optimal international equity portfolio allocations by home and foreign investors, we find compelling evidence supporting the theory that countries which demonstrate higher home bias are associated with higher cost of capital. Similarly, consistent with theory we also find that countries which are favoured by foreign investors, relative to theoretical prescription, are associated with lower cost of capital.
Author(s): | Kwabi, Frank, Faff, Robert, Marshall, Andrew ![]() ![]() | Item type: | Article |
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ID code: | 56450 |
Keywords: | market integration, international capital asset pricing model, equity home bias, equity foreign bias, cost of capital, Accounting, Finance, Business, Management and Accounting(all) |
Subjects: | Social Sciences > Commerce > Accounting Social Sciences > Finance |
Department: | Strathclyde Business School > Accounting and Finance |
Depositing user: | Pure Administrator |
Date deposited: | 20 May 2016 13:00 |
Last modified: | 27 Nov 2019 04:49 |
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URI: | https://strathprints.strath.ac.uk/id/eprint/56450 |
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