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The Home(-Sickness) Bias of Foreign Holdings

Quoc H. Nguyen

University Of Illinois at Urbana-Champaign - Department of Finance

December 18, 2012

The well documented "Equity home bias puzzle" refers to the fact that investors tend to hold poorly diversified portfolios by favoring domestic stocks over international stocks. However, I show that even holdings of international stocks exhibit a form of home bias. I find that U.S. mutual funds invest significantly more in countries that have a strong associated ethnic group population near the funds' offices. Mutual funds that take advantage of the information generated by the local ethnic groups out-perform otherwise similar funds by more than 1.4% per quarter in their foreign holdings. This paper documents a new form of home bias, sheds light on a new information channel for foreign investment decisions, and contributes to the debate on whether mutual fund managers have skills.

Number of Pages in PDF File: 41

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Date posted: December 16, 2012 ; Last revised: December 18, 2012

Suggested Citation

Nguyen, Quoc H., The Home(-Sickness) Bias of Foreign Holdings (December 18, 2012). Available at SSRN: http://ssrn.com/abstract=2189928 or http://dx.doi.org/10.2139/ssrn.2189928

Contact Information

Quoc Hoai Nguyen (Contact Author)
University Of Illinois at Urbana-Champaign - Department of Finance ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
217-721-7458 (Phone)
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References:  47
Footnotes:  7

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