Home Bias in Foreign Investment Decisions

Journal of International Business Studies, Forthcoming

Posted: 24 Apr 2009

See all articles by Dongmin Ke

Dongmin Ke

Kean University

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Qinghai Wang

University of Central Florida - College of Business Administration

Date Written: April 20, 2009

Abstract

We analyze the U.S. equity holdings of more than 3,000 non-U.S. based mutual funds from 22 countries and find robust evidence that fund managers strongly prefer to invest in stocks of U.S. firms that have presence in their home country. This "home bias" is independent of the degree of global involvement and visibility of these U.S. firms. While these firms have significantly greater exposure to local equity markets, their local presence offers little information advantage to local fund managers. Our findings suggest that the lack of international diversification is more serious than currently documented in the literature.

Keywords: Foreign Investments, Mutual Funds, and Local Presence

JEL Classification: G11, G23

Suggested Citation

Ke, Dongmin and Ng, Lilian and Wang, Qinghai, Home Bias in Foreign Investment Decisions (April 20, 2009). Journal of International Business Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1392408

Dongmin Ke (Contact Author)

Kean University ( email )

1000 Morris Ave
Union, NJ 07083
United States

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Qinghai Wang

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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