Home Bias in Foreign Investment Decisions
Journal of International Business Studies, Forthcoming
Posted: 24 Apr 2009
Date Written: April 20, 2009
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: Suggested Citation