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 (https://doi.org/10.1016/j.mulfin.2016.04.001)

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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;
  • 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:24 Sep 2022 02:12
    Related URLs:
    URI:https://strathprints.strath.ac.uk/id/eprint/56450
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