Home bias in the global portfolio investment of selected OIC countries

Authors

  • Nura Lina Md Elias Faculty of Business and Management, Universiti Teknologi MARA Puncak Alam, Malaysia
  • Syed Musa Alhabshi Institute of Islamic Banking and Finance, International Islamic University Malaysia, Malaysia
  • Razali Haron Institute of Islamic Banking and Finance, International Islamic University Malaysia, Malaysia

DOI:

https://doi.org/10.24191/jeeir.v10i1.16093

Keywords:

Home bias, Global portfolio investment, Gravity model, Information asymmetry, Familiarity, Distance

Abstract

Home bias reflects the propensity of investors to allocate their portfolio substantially in domestic market. The existence of home bias offers a new discovery that enables for a comprehensive and robust investigation of such phenomenon. Therefore, the main agenda of this research is to examine the determinants of home bias in the global portfolio investment of selected OIC countries. An unbalanced bilateral panel data of 12 OIC countries’ outward equity investment in 74 host countries from year 2001 to 2016 was analysed. System Generalized Method of Moments (GMM) estimator was employed to determine the factors influencing home bias. The findings show that home bias can be explained by factors related to institutional quality, familiarity, and global financial crisis. The relative factors introduced in the current study significantly explained the existence of home bias phenomenon. Summative findings indicate that home bias may discourage global portfolio investment, but there is a tendency of over-investment in MENA region based on geographical preferences. This study has a significant implication to investors, fund managers and regulators of the OIC countries. Investors and fund managers in OIC countries should be aware of the existence of home bias in their global portfolio that may potentially reduce the benefits of optimal diversification. It is a call for policy makers in the OIC countries to convince their local investors that international portfolio diversifications are able to minimize portfolio’s risk and eventually increase the investment returns.

Author Biographies

Nura Lina Md Elias, Faculty of Business and Management, Universiti Teknologi MARA Puncak Alam, Malaysia

Nura Lina Md Elias, Ph.D is a Senior Lecturer in the Department of Economics and Financial Studies at the Faculty of Business and Management, Universiti Teknologi MARA, Selangor, Malaysia. (ORCHID: https://orcid.org/ 0000-0003-3213-1542). Her research focuses in global portfolio investment, behavioural finance, and personal financial planning. She has a vast industry experience in supervising and monitoring fund management operations and compliance prior joining academia. She can be contacted at nuralinaelias@uitm.edu.my

Syed Musa Alhabshi, Institute of Islamic Banking and Finance, International Islamic University Malaysia, Malaysia

Syed Musa Alhabshi, DBA, is an Associate Professor in the IIUM Institute of Islamic Banking and Finance at the International Islamic University, Malaysia. (ORCID: https://orcid.org/0000-0001-8274-9944). His main research activity is in the area of Islamic Banking and Finance. He has published widely on these subjects in publications such as the Humanomics, Review of Islamic Economics, Journal of Financial Reporting and Accounting, Journal of Financial Economic Policy, Pacific Basin Finance Journal. He can be reached through his email at syedmusa@iium.edu.my

Razali Haron, Institute of Islamic Banking and Finance, International Islamic University Malaysia, Malaysia

Razali Haron, DBA, is an Associate Professor in the IIUM Institute of Islamic Banking and Finance at the International Islamic University, Malaysia. (ORCID: http://orcid.org/0000-0003-0415-4093). His research focuses on corporate governance and corporate finance. His works appeared in international publishers, among others, Elsevier, Emerald, Inderscience, Sage, Springer, Palgrave Macmillan, IGI Global, IntechOpen, and Islamic Finance News.  He can be contacted at hrazali@iium.edu.my.

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Published

2022-01-31

How to Cite

Md Elias, N. L., Alhabshi, S. M., & Haron, R. (2022). Home bias in the global portfolio investment of selected OIC countries. Journal of Emerging Economies and Islamic Research, 10(1), 24–43. https://doi.org/10.24191/jeeir.v10i1.16093

Issue

Vol. 10 No. 1 (2022): January 2022 Issue

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Articles

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Copyright (c) 2022 Nura Lina Md Elias, Syed Musa Alhabshi, Razali Haron

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