Equity Home Bias, Financial Integration, and Regulatory Reforms: Implications for Emerging Asia
Park, Cyn-Young; Mercado, Rogelio Jr. V. | May 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.
Citation
Park, Cyn-Young; Mercado, Rogelio Jr. V.. 2014. Equity Home Bias, Financial Integration, and Regulatory Reforms: Implications for Emerging Asia. © Asian Development Bank. http://hdl.handle.net/11540/1294. License: CC BY 3.0 IGO.Keywords
Regional Development Finance
Public Scrutiny of City Finances
Non-Bank Financial Institutions
Local Government Finance
Government Financial Institutions
Foreign and Domestic Financing
Financial Risk Management
Assessing Corporate Governance
Good Governance
Governance Approach
Public Accounting
Business Financing
Subsidies
Social Equity
Economic Equity
Project Risks
Project Impact
Public Administration
Corporations
Taxing power
Tax administration and procedure
Tax policy
Effect of taxation on labor supply
Decentralization in government
Community power
Corporate divestment
Civil government
Delegation of powers
Equality
Neighborhood government
Subnational governments
Delivery of government services
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