Author

  • Nura Lina Md Elias

    • Department of Economics and Financial Studies, Faculty of Business Management, Universiti Teknologi MARA, Selangor, Malaysia
    • Malaysia

Abstract

Home bias reflects the propensity of investors to invest substantially in the domestic market. When investing abroad investors’ exhibit foreign bias, a tendency to overweight certain foreign markets based on their preferences. The existence of foreign bias offers a discovery of a new dimension that enables a thorough investigation of such phenomena. A thorough review of the literature reveals that foreign bias has not been thoroughly investigated in emerging countries, especially in the context of OIC countries. In addition, there is yet to see any attempt to explore the potential explanation of the home bias and foreign bias based on relative factors. In other words, the effect of relative factors between home and host countries’ factors remains unexplored. Therefore, the current study undertakes a novelty approach to fill this gap by engaging on relative factors between home and host countries. Therefore, the purpose of this research is to examine the determinants of foreign 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 the year 2001 to 2016 is analyzed. The samples observed are based on the composition of host countries that comprise global, intra-OIC, and non-OIC. Cross-sectional analysis shows that OIC countries exhibit higher foreign bias towards their OIC counterparts especially in the MENA region. The results suggest, OIC countries not only exhibit foreign bias but also demonstrate regional bias. System Generalized Method of Moments (GMM) empirically shows that foreign bias is possibly explained by factors related to financial market openness, familiarity, information asymmetry, and global financial crisis. This study has a significant implication for the investors, fund managers and the regulators of the OIC countries. Investors and fund managers in OIC countries should be aware of the existence of foreign bias in their global portfolio investment 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 diversification offers risk sharing and eventually increases the investment return. In addition, policy makers in OIC countries need to design a comprehensive investment agreement to attract active participation and inter-regional investments among OIC countries.

Keywords

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How to Cite

Elias, N. L. M. (2023). Foreign Bias in the Global Portfolio Investment of Selected OIC Countries. Information Management and Business Review, 15(3(I), 216-235. https://doi.org/10.22610/imbr.v15i3(I).3531

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Vol. 15 No. 3(I) (2023) Consumer Behaviour, Financial Literacy & Student Wellbeing View issue contents

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2023-10-08

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