WHY IS THERE A HOME BIAS - AN ANALYSIS OF FOREIGN PORTFOLIO EQUITY OWNERSHIP IN JAPAN

This paper studies stock ownership in Japanese firms by non-Japanese i nvestors from 1975 to 1991. Existing models predicting that foreign in vestors hold national market portfolios or portfolios tilted towards s tocks with high expected returns are inconsistent with our evidence. W e document that foreign investors hold disproportionately more shares of firms in manufacturing industries, large firms, and firms with good accounting performance, low unsystematic risk, and low leverage. Cont rolling for size, there is evidence that small firms that export more, firms with greater share turnover, and firms that have ADRs have grea ter foreign ownership.