Impact of culture and patriotism on home bias in bond portfolios

摘要

Extant research has documented a substantial impact of culture and patriotism on equity home bias. This paper examines whether culture and patriotism influence home bias in bond portfolios. In this respect, I differentiate between two different aspects of home bias: domestic bias (overinvestment in domestic debt securities) and foreign bias (over- or underinvestment in debt securities issued by different host countries). The analysis uses the Coordinated Portfolio Investment Survey data over the 2004-2012 period and relies on extensive robustness checks based on four internationally recognized cross-cultural research projects: the GLOBE study of House et al. (Culture, leadership, and organizations: the GLOBE study of 62 societies, Sage Publications, Thousand Oaks, 2004), the "Cultures and Organizations" of Hofstede et al. (Cultures and organizations: software of the mind, 3rd edn, McGraw-Hill, New York, 2010), the International Social Survey Program, and the World Values Survey. There is strong evidence that patriotism deters foreign investment and increases overinvestment in domestic bonds. Investors from countries with higher levels of uncertainty avoidance invest less in foreign debt markets.