Research On Influencing Factors Of Home Bias Of International Equity Investment

A consensus in international investment theory is that investors should carry out decentralized asset allocation in order to obtain the benefits of diversified risks and improved returns,but in fact,investors around the world seem to have abandoned the benefits of such decentralized investment.The tendency to invest too much in the home country and prefer to buy domestic assets is a deviation from theory and practice known as the local preference in international equity investment.This phenomenon has attracted a lot of attention since it was introduced in the 1990s.Scholars from various countries have also looked for different reasons to analyze and explain it.However,until now,the mystery of local preference has not been completely solved.The paper combs the literature on local preference research in recent years,selects various possible explanatory factors,and uses macroeconomic data from 34 countries and regions in the world from 2007 to 2017 to conduct empirical research on local preference issues.The research content is mainly divided into two parts.The first part is a descriptive analysis of the change in the trend of local preferences in various countries(or regions).In this part,on the one hand,the Bayes-Stein contraction estimator is used to estimate the degree of local preference,and the main change trends are classified and analyzed;on the other hand,the degree of local preference in China from 2015 to 2017 is measured as a trend analysis A supplement.This part mainly draws the following conclusions:First,the changes in the local preference of the sample countries and regions in recent years can be roughly divided into two categories.The trend of the first category shows an increase after a decline,and the opposite of the second category:a decline after an increase;Second,although the changing trends vary from place to place,they show some common points,that is,the 2008 economic crisis has a significant impact on the changes in the local preferences of various countries.In the three or two years after the economic crisis,the local preferences of most countries(or regions)appear A steep rise or fall.The second main part of this study is the empirical analysis of local preference phenomena.In this part,the relevant explanatory variables and instrumental variables are selected.By constructing a systematic GMM model and comparing and analyzing the significance of each explanatory variable,the following conclusions can be drawn.First,the results of the first-order lag regression of the explanatory variables are significant,which means that the local preference of the place is affected by the previous local preference.The variable representing the degree of trade openness accounts for the proportion of GDP in imports and exports.IEG represents the financial market of a certain place.The variable FINANCE in relation to global financial markets,which represents the KAOPEN index of capital account openness,can significantly explain the degree of local preference in the sample period and sample countries and regions.Among them,the variable FINANCE and variable IEG have a positive effect on local preference The impact means that the closer a country(or region)is to the global market,the higher the degree of trade openness and the greater the degree of local preference.The KAOPEN index coefficient is negative,which means that the more open its capital account is,the lower the degree of local preference.Second,multiple instrumental variables were selected in the empirical model,such as whether it was during a financial crisis,whether it was a developed country(or a region),or whether it was an EU country,etc.These instrumental variables were used to explain the variables of the equation through corresponding endogenous variables The degree of local preference has an impact.The shortcomings of the research are mainly the following points.First,with regard to the selection of local preference data,due to the availability of data and the accuracy of calculation,the selected data indicators may not be perfect,and it may be possible to analyze the factors that affect local preference.Is not comprehensive enough.Limited by the availability of data,China has not been included in the scope of empirical model analysis.China is already the world's second largest economy,the world's largest developing country,and the market value of the stock market also occupies about 10%of the global market value.It is second only to the US stock market.China is not included in the scope of analysis and it is a local investment in the world.A flaw in preference analysis.Second,the explanatory variables may not be fully covered.The main significance of the research lies in the following three points.First,it analyzes the change trend of local preference phenomena in the past decade and finds relevant variables to explain and analyze it.Second,the analysis of the widespread local preference phenomenon in the world is also of reference significance for investors to adjust and analyze their investment strategies.Third,a brief analysis of China's local preference phenomenon as a whole is a supplement to the global local preference phenomenon.