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Home Bias in European Countries within a Bayesian Framework

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Author

Summary, in English

This paper determines to what extent the estimated expect returns on European equity indices will be affected by different degrees of prior confidence in the ICAPM. We also measure how fragile the investors’ prior confidence in ICAPM should be in order to explain the home bias of European pension funds. A Bayesian approach is used to estimate the expected asset returns under different prior scenarios. We show that a moderate mistrust in ICAPM results in estimates of the expected returns, which substantially deviate from the estimates by ICAPM. Furthermore, we find a strong home bias in most countries, which cannot be explained by any degree of disbelief in the ICAPM.

Publishing year

2006

Language

English

Pages

397-410

Publication/Series

Journal of International Financial Markets, Institutions, and Money

Volume

16

Issue

5

Document type

Journal article

Publisher

North-Holland

Topic

  • Economics

Keywords

  • Bayesian approach
  • Home bias
  • ICAPM

Status

Published

ISBN/ISSN/Other

  • ISSN: 1042-4431