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.

    ORCID iDs

    Kwabi, Frank, Faff, Robert, Marshall, Andrew ORCID logoORCID: https://orcid.org/0000-0001-7081-1296 and Thapa, Chandra ORCID logoORCID: https://orcid.org/0000-0001-8661-8079;
    • Item type:Article
      ID code:56450
      Dates:
      Date
      Event
      1 June 2016
      Published
      9 April 2016
      Published Online
      4 April 2016
      Accepted
      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:05 Dec 2021 01:35
      Related URLs:
      URI:https://strathprints.strath.ac.uk/id/eprint/56450
    CORE (COnnecting REpositories)