Doctor of Philosophy, The Ohio State University, 2014, Business Administration

This dissertation examines three distinct questions within the international portfolio choice literature. In chapter one, I study the change in the equity home bias during the financial panic of 2008. Using a sample of 45 countries, I document that the equity home bias fell. This is puzzling because theories of home bias and portfolio choice under uncertainty predict that during a crisis, the home bias should increase. With a novel methodology, I show that the active trades of investors, which increased the home bias, were subsumed by the passive valuation changes in their portfolio holdings, which decreased the home bias. I find evidence consistent with a role for portfolio rebalancing, increased information asymmetries, and the familiarity bias in portfolio allocations during the crisis. In chapter two, I analyze the impact of aggregate changes in U.S. demand for foreign stocks on U.S. firm-level stock prices. Separating U.S. net flows into outflows and inflows, I document that stocks with higher sensitivity to outflows earn significantly lower risk-adjusted returns. High outflows-beta firms tend to be smaller, younger, more volatile, and less globally diversified. Using firm-level, risk-adjusted returns, I find that the significantly negative premium is not subsumed by these characteristics or others commonly associated with misvaluation or limits to arbitrage. I show that the return on an outflows-mimicking portfolio is predictable and largely concentrated during periods when the demand for foreign equity is likely to fall, i.e., following reduced wealth, increased uncertainty, and reduced sentiment. The results are consistent with sensitivity to aggregate changes in U.S. demand for foreign stocks affecting firm-level U.S. stock returns. In chapter three, I study why U.S. investors' foreign portfolio share nearly doubled from 1994 to 2010. Using a sample of monthly bilateral equity holdings between investors in the U.S. and 45 countries, I document that (open full item for complete abstract)

Committee: René Stulz Ph.D. (Committee Chair); Kewei Hou Ph.D. (Committee Member); Ingrid Werner Ph.D. (Committee Member) Subjects: Finance