The Home(-Sickness) Bias of International Holdings

Abstract

U.S. mutual funds invest significantly more in countries that have a strong associated ethnic group population near the funds' offices. Moreover, the ethnicity of the mutual fund's manager is strongly predictive of the mutual fund's international holdings. Mutual funds that take advantage of the information generated by the local ethnic groups outperform otherwise similar funds by more than 1.5% per quarter in their international holdings. This paper documents a new form of home bias, sheds light on a new information channel for international investment decisions, and contributes to the debate on whether mutual fund managers have skills.

Keywords: Mutual funds, home bias, international investment

JEL Classification: G11, G15, G23