Abstract:
Countries whose citizens have liberal ideals are less biased toward domestic equity. Data
from 30 countries suggests that economic as well as social liberalism is associated with
proportionally higher foreign equity holdings. A one standard deviation increase in the
level of economic (social) liberalism relative to time-series and cross-sectional averages,
is associated with a 5% (2%) relative decrease of home equity bias. These results hold
after controlling for standard rational and behavioral explanations of the home equity
bias as well as country and time fixed effects.