Open AccessInternational portfolio diversification and genetic relatedness
Author(s) -
Cristina Harin
Publication year - 2021
Publication title -
review of economic studies and research "virgil madgearu"
Language(s) - English
Resource type - Journals
ISSN - 2069-0606
DOI - 10.24193/rvm.2021.14.78
Subject(s) - diversification (marketing strategy) , equity (law) , portfolio investment , portfolio , foreign portfolio investment , foreign direct investment , economics , foreign exchange , monetary economics , financial economics , business , microeconomics , return on investment , open ended investment company , marketing , production (economics) , political science , law , macroeconomics
The purpose of this paper is to shed some light on how relatedness between counterparties can explain investment behavior, specifically how much can investor’s inherited traits influence the exchange of capital. We use the genetic distance index and regress it against the foreign bias measure on pairs from 40 countries on a time period from 2001-2016. We identify that the prior exerts a significant impact on foreign investment decision, even when controlling for previous documented determinants of foreign bias. These findings reflect that international portfolio allocation is obstructed by the cultural wedge created between source and destination country, since relative difference in these characteristics disturb the flow of equity investments across markets, which ultimately hinder diversification.