Equity Home Bias, Financial Integration, and Regulatory Reforms: Implications for Emerging Asia

44 Pages Posted: 2 Apr 2015 Last revised: 29 May 2018

See all articles by Cyn-Young Park

Cyn-Young Park

Asian Development Bank

Rogelio Mercado

The SEACEN Centre; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: May 1, 2014

Abstract

With increasing financial integration and improving regulatory quality, we expect equity home bias to decline. Drawing on the supportive evidence for such trends in advanced economies, this paper investigates the links between financial integration and regulatory quality; and equity home bias in emerging Asia. To test the significance, a pooled OLS estimation was used. The results show that greater global and regional financial integration and better regulatory quality significantly lower equity home bias against global and regional stocks. The estimates also find that the lag value of the home bias significantly lowers equity home bias against global and regional equities; while bank assets and stock market capitalization increase the said bias against global and regional equities. Interestingly, volatility of foreign exchange rate significantly increases equity home bias against regional stocks, but not for the home bias against global stocks. The results suggest that if ongoing financial regulatory reforms lead to less information asymmetry and lower transaction and information costs in emerging Asia, equity home bias will continue to decline, allowing for greater portfolio diversification and more efficient allocation of capital resources.

Keywords: equity home bias; financial integration; regulatory reforms

JEL Classification: F36, G11, G28

Suggested Citation

Park, Cyn-Young and Mercado, Rogelio, Equity Home Bias, Financial Integration, and Regulatory Reforms: Implications for Emerging Asia (May 1, 2014). Available at SSRN: https://ssrn.com/abstract=2588985 or http://dx.doi.org/10.2139/ssrn.2588985

Cyn-Young Park (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines
(632) 632-5473 (Phone)

HOME PAGE: http://www.adb.org

Rogelio Mercado

The SEACEN Centre ( email )

Level 5, Sasana Kijang, Bank Negara Malaysia
2 Jalan Dato’ Onn
Kuala Lumpur, 50480
Malaysia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
72
Abstract Views
600
Rank
585,002
PlumX Metrics