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Review of Quantitative Finance and Accounting

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01.08.2011 | Original Research

Australia’s equity home bias and real exchange rate volatility

verfasst von: Anil V. Mishra

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 2/2011

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Abstract

The main purpose of this paper is to consider the effect of real exchange rate volatility on equity investment by Australian investors. Equity investment is of major importance to savers and investors in Australia. Also real exchange rate volatility is an important influence on Australia’s financial integration in the global economy. Analysis of the effect of real exchange rate volatility on Australia’s equity home bias is important since Australian dollar is a commodity currency. There is a close relationship between Australia’s terms of trade and real exchange rate volatility. Home bias is measured on the basis of free float-adjusted market capitalization in recognition of the fact that closely held shares are not available to ordinary investors. Real exchange rate volatility is measured by deviations from purchasing power parity on a bilateral basis between Australia and 35 countries. The cross-border equity investment data over the period 2001–2007 are from International Monetary Fund’s Coordinated Portfolio Investment Survey. Australian investors are found to invest significantly less in a country if the real exchange rate volatility of that country is relatively high (results that are robust to standard control measures and generalized method of moments).

Vorheriger Artikel Firm value and investment policy around stock for stock mergers

Nächster Artikel Endogenous problems in cross-sectional valuation models based on accounting information

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Readers may refer to Mishra (2008) (Appendix B, pp. 71) for the number of firms with free float market value.

The reader is referred to Fidora et al. (2007) for details of the derivation.

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Titel: Australia’s equity home bias and real exchange rate volatility
verfasst von: Anil V. Mishra
Publikationsdatum: 01.08.2011
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 2/2011
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-010-0202-3

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