Emory University, Goizueta Business School

Emory University, Goizueta Business School Emory University, Goizueta Business School

1300 Clifton Road, Atlanta, 30322, GA, US

Reducing home equity bias through transparency

Reducing home equity bias through transparency 2018-07-31
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Grace Pownall

One of the goals of global stock exchange mergers is to create a consolidated trading platform that makes listed firms available to a greater number of investors while providing firms with larger pools of liquidity. But the problem of equity home bias—the tendency of investors to overinvest in domestic securities and underinvest in foreign securities—can thwart optimal global portfolio diversification. In a recent study, Grace Pownall, professor of accounting; Maria Vulcheva 05MBA 11PhD (FIU); and Xue Wang (Ohio State) examine such home bias in Euronext, which was created in 2002 when four European countries merged their stock exchanges. The researchers focus in particular on two structural mechanisms adopted by Euronext: (1) the integration of trading platforms across the four exchanges, and (2) the creation of named segments open to firms that voluntarily pre commit to greater transparency in financial reporting and corporate governance. In their investigation of these mechanisms, the researchers find that firms that choose not to join the segmented list see no diminution of home bias, while the segmented, more transparent firms reap significant increases in all categories of foreign holdings relative to domestic holdings.

Source:
papers.ssrn.com

The Ability of Global Stock Exchange Mechanisms to Mitigate Home Bias

This paper examines the effects on equity Home Bias of two mechanisms adopted by Euronext when it was formed by the merger of four European countries' stock exchanges in 2002.

papers.ssrn.com