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In this paper researchers examine the home bias in international asset allocation. There are several explanations for this observed home bias. Recent studies offer some insight into understanding this puzzle. In this paper researchers assess whether the degree of home bias has changed over the twelve year period, especially after the financial crisis of 2008. Institutional and behavior-based explanations for the phenomena are considered and discussed. We examine if any of the theoretical explanations or recent developments such as the number of industries, trade, the advent of the internet, and geographic distance have affected the increase in foreign diversification. The empirical analysis produces some interesting results. It demonstrates that the rise of the number of industries and geographic distance affected significantly the changes in foreign diversification. The results also indicate that there is a shift of perspective from a national basis to a regional bias (Euro area basis), inevitably induced by EMU. Other factors such as number of internet users, which intuitively might be expected to affect foreign diversification, are insignificant. Research concludes that none of the proposed theories can explain the full extent of the home bias, thus we argue that international portfolio allocation should be justified by a combination of rational and irrational explanations
SAOUSSEN OTHMANI, IMEN BEN SAANOUN , WAFA GARALI, MOUNIRA BEN ARAB. (2014) Determinants of Home Bias Puzzle in European Countries, International Review of Management and Business Research, Volume 3, Issue 1.
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