U.S. multinationals and the home bias puzzle: an empirical analysis

Salehizadeh, Mehdi

doi:10.1016/j.gfj.2003.10.002

Cited by 14 publications

(6 citation statements)

References 36 publications

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“…Thus, there is no benefit to adding MNCs to a portfolio of purely domestic firms for Chinese investors. These results support the findings of Wright and McCarthy (2002), Salehizadeh (2003) and Rowland and Tesar (2004) who all find that investing in MNCs does not yield diversification benefits albeit in developed markets.…”

Section: Resultssupporting

confidence: 89%

“…Berrill and Kearney (2010) conclude that MNCs can provide diversification benefits for all G7 countries. The issue is far from settled, however, because work by Jacquillat and Solnik (1978), Senchack and Beedles (1980), Brewer (1981), Fatemi (1984), Michel and Shaked (1986), Kim and Lyn (1990), Mathur, Singh and Gleason (2001), Wright and McCarthy (2002), Salehizadeh (2003) and Rowland and Tesar (2004) has all found that investing in MNCs does not yield significant international diversification benefits. Wright and McCarthy (2002) argue no benefits are available for Australian investors.…”

Section: Literature Reviewmentioning

confidence: 99%

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An Investigation into the Benefits of Investing in Chinese Multinational Companies

Berrill

Sun

2018

Journal of Emerging Market Finance

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We provide a unique longitudinal analysis into firm-level multinationality of Chinese firms between 2002 and 2012 using two measures of multinationality—the Aggarwal, Berrill, Hutson and Kearney (2011, International Business Review, 20, 557–577) system and foreign sales as a percentage of total sales. We find that Chinese firms have low levels of multinationality with most foreign sales in the triad regions of Asia, Europe and North America. We use mean variance spanning tests to investigate the benefits from investing in Chinese multinational corporations (MNCs). We find that Chinese MNCs offer little diversification benefits to domestic investors and firms with greater multinationality levels do not result in greater benefits.

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Section: Resultssupporting

confidence: 89%

Section: Literature Reviewmentioning

confidence: 99%

An Investigation into the Benefits of Investing in Chinese Multinational Companies

Berrill

Sun

2018

Journal of Emerging Market Finance

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“…Mishra and Daly (2006) analyse the geography of Australia's international portfolio investment using CPIS dataset. For United States, Salehizadeh (2003) use daily data covering the period of January 31, 1995 to May 31, 2001 to examine whether U.S. multinationals are the reason for the home bias puzzle. They subject a portfolio based on dollar returns of 47 U.S. multinationals, as well as a base portfolio represented by the broad S&P 500 index to correlation tests vis-a-vis non-U.S. stock indices.…”

Section: Literature Reviewmentioning

confidence: 99%

Australia’s equity home bias and real exchange rate volatility

Mishra

2010

Rev Quant Finan Acc

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This paper examines the impact of real exchange rate volatility on Australia's equity home bias by employing, International Monetary Fund's high quality dataset (2001 to 2006) on cross border equity investment. The paper finds some interesting trends in Australia's equity home bias. The paper uses different control measures and also conducts generalised method of moments robustness tests, to examine the role of real exchange rate volatility in Australia's equity home bias. The paper finds that real exchange rate volatility is a potential driver of Australia's equity home bias.JEL Classifications: G11, G15, G18 Keywords: coordinated portfolio investment survey; float home bias; real exchange rate volatility; generalised method of moments. (1994) state that the domestic ownership share of the world's eight major stock markets: US (98 %), Japan (86.7 %), UK (78.5 %), Germany (75.4 %), France (64.4 %), Italy (91.0%), Spain (94.2%) and Sweden (100.0%). The share of domestic equities in the world market portfolio for these eight stock markets is: US (36.4 %), Japan (43.7 %), UK (10.3 %), Germany (3.2 %), France (2.6 %), Italy (1.9 %), Spain (1.1 %) and Sweden (0.8 %). This is contrary to the traditional international capital asset pricing model (ICAPM) which predicts that an investor should hold equities from a country as per that country's share of world market capitalisation (Sharpe (1964) andLintner (1965)). This phenomenon is termed as "home bias". Mishra (2008) state that in the year 2005, United States actual share in Australia's equity portfolio is 11.076 %, whereas the ICAPM benchmark percentage is 32.836 %.

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“…1 The results of previous studies investigating the international diversification benefits of investing in MNCs have been mixed. Studies by Jacquillat and Solnik (1978), Brewer (1981), Michel andShaked (1986), andSalehizadeh (2003) find that U.S. MNCs do not mimic 1 We extend Errunza, Hogan and Hung (1999) by adding single-country iShare ETFs to the analysis and comparing portfolios of equity products rather than using a stepwise approach of augmenting diversification portfolios.…”

Section: Discussion Of the Literaturementioning

confidence: 99%

“…The results of previous studies investigating the international diversification benefits of investing in MNCs have been mixed. Studies by Jacquillat and Solnik (), Brewer (), Michel and Shaked (), and Salehizadeh () find that U.S. MNCs do not mimic international returns. In contrast, Agmon and Lessard (), Mikhail and Shawky (), Logue (), and Rowland and Tesar () find that MNCs provide significant international diversification benefits.…”

Section: Discussion Of the Literaturementioning

confidence: 99%

The international diversification benefits of U.S.‐traded equity products

O'Hagan‐Luff

Berrill

2018

Int. J Fin Econ

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The benefits of international diversification for equity investors have been highlighted for decades. Despite the reduction of many previous barriers to foreign investment, investors are found to persistently overweight domestic equities. This paper examines whether the benefits of international diversification are available via U.S.‐traded equity products over a 15‐year period between 1996 and 2011. The equity products investigated are multinational corporations (MNCs), American depository receipts (ADRs), single‐country exchange‐traded funds, iShares, and closed‐end country funds. Mean‐variance spanning tests and Sharpe ratio analysis reveal that portfolios of ADRs and MNCs offer the greatest international diversification benefits to U.S. investors in a domestic setting. Whereas the benefits of international diversification vary during periods of differing market conditions, the findings for ADRs and MNCs remain robust. We conclude that it is possible to reap the benefits of international diversification via U.S.‐traded equity products but that the benefits of different equity types vary significantly.

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U.S. multinationals and the home bias puzzle: an empirical analysis

Cited by 14 publications

References 36 publications

An Investigation into the Benefits of Investing in Chinese Multinational Companies

An Investigation into the Benefits of Investing in Chinese Multinational Companies

Australia’s equity home bias and real exchange rate volatility

The international diversification benefits of U.S.‐traded equity products

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