|Author:||Chiang, Hsin Eric|
|Title:||Home bias, investor sentiments and international portfolio management|
Hong Kong Polytechnic University -- Dissertations
|Department:||Faculty of Business|
|Pages:||viii, 102 leaves : color illustrations ; 30 cm|
|Abstract:||We propose and analyze an international portfolio trading strategy based on the prevailing risk assessments and investment sentiments. In particular, we study the performance impact of a hypothetical global portfolio with the country allocation driven by varying degrees of equity home bias which, in turn, are modulated by changes in investor sentiments. Using the United States as the home base, we gear our model portfolios towards more international equities when the overall investor sentiment becomes bullish ("risk-on"); and when the sentiment turns bearish ("risk-off"), our portfolio is then geared more towards US equities.Our findings suggest that such a trading strategy could indeed produce significant outperformance alpha when compared to a benchmark market-cap-weighted global market portfolio. The outperformance might be attributed to a general mis-valuation across equity markets during extreme investment sentiment conditions. When such mis-valuation attracts international capital flows across borders, the subsequent correction in mis-valuation can help us realize trading profits. Our finding also indicates the possible existence, at the global level, of a variation in equity home bias according to the prevailing investor sentiments that have only been documented at the regional level in the literature today.|
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