International Finance Discussion Papers (IFDP)
July 2003 (Revised September 2003)
U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis
Hali J. Edison and Francis E. Warnock
Abstract:
We analyze a unique data set and uncover a remarkable result that casts a new light on the home bias phenomenon. The data are comprehensive, security-level holdings of emerging market equities by U.S. investors. We document, as expected, that at a point in time U.S. portfolios are tilted towards firms that are large, have fewer restrictions on foreign ownership, or are cross-listed on a U.S. exchange. The size of the cross-listing effect is striking. In contrast to the well-documented underweighting of foreign stocks, emerging market equities that are cross-listed on a U.S. exchange are incorporated into U.S. portfolios at full international CAPM weights. Our results suggest that information asymmetries play an important role in equity home bias and that the benefits of international risk sharing are limited to select firms.
Original version (PDF)Keywords: Emerging markets, portfolio choice, home bias, international risk sharing
PDF: Full Paper
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