Working Paper: NBER ID: w8680
Authors: Lee Pinkowitz; Ren M. Stulz; Rohan Williamson
Abstract: In most countries, many of the largest corporations are controlled by large shareholders. We show that, under reasonable assumptions, this stylized fact implies that portfolio holdings of U.S. investors should exhibit a home bias in equilibrium. We construct an estimate of the world portfolio of shares available to investors who are not controlling shareholders. This available world portfolio differs sharply from the world market portfolio. In regressions explaining the portfolio weights of U.S. investors, the world portfolio of available shares has a positive significant coefficient but the world market portfolio has no additional explanatory power. This result holds when we control for country characteristics.
Keywords: No keywords provided
JEL Codes: G110; G120; G150; G320
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Controlling shareholders in foreign firms (G34) | Equity holdings of U.S. investors (G23) |
| Proportion of shares held by controlling shareholders in a foreign country's stock market (G34) | Share of that country's equities held by U.S. investors (G15) |
| Concentration of ownership increases (G34) | U.S. investors are less likely to invest in those markets (G15) |
| Controlling shareholders (G34) | Effective world portfolio available to U.S. investors (G15) |
| Home bias of U.S. investors (F23) | Economic significance of controlling shareholders in foreign markets (F23) |