No Flight to Home: Changes in Foreign Portfolio Allocation During the COVID-19 Crisis

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School of Business | Bachelor's thesis
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Date

2025

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Rahoitus

Language

en

Pages

19

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Abstract

This study examines how foreign equity allocation changed at the beginning of the COVID-19 pandemic by dividing the changes into active components, caused by investor transactions, and passive components, caused only by market and currency rate fluctuations, following the methodology of Wynter (2019). Contrary to expectations of the financial literature, foreign equity allocation saw a widespread global surge during 2020, increasing in 34 of the 46 countries studied. More notably, this increase was primarily driven by active trading decisions made by investors, averaging a -2.24% decrease in home bias. These findings suggest that the expected “flight-to-home” effect of equities did not occur in 2020, despite the increased uncertainty in financial markets caused by the pandemic.

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Thesis advisor

Keloharju, Matti

Keywords

home bias, financial crisis, equity allocation, COVID-19 pandemic

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https://urn.fi/URN:NBN:fi:aalto-202505183775

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[kand] Kauppakorkeakoulu / BIZ