Work detail

Equity Home Bias in the Czech Republic

Author: Mgr. Karel Báťa
Year: 2009 - winter
Leaders: PhDr. Jan Zápal Ph.D.
Work type: Doctoral
Language: English
Pages: 82
Awards and prizes:
Abstract: Home bias is a common phenomenon in world equity markets. Investors reveal a tendency to prefer domestic over foreign equities despite the financial losses. From institutional perspective the factors that cause home biasness are the barriers to entry the foreign markets, international transaction costs, insufficient liquidity, asymmetric information and information costs, corporate governance and inflation and exchange rate risks. Behavioral finance argues that irrationality of investors cause the home bias. It is however difficult to determine which factors are more important. In this paper I introduce a model of optimal portfolio of Czech investors. The prediction of the model suggests that Czech investors should have less than 50 % in domestic equities. However, the OECD data shows that they hold over 87 % in domestic equities. There is also an equity home bias in the Czech Republic.
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