83 Pages Posted: 12 Apr 2014 Last revised: 9 Sep 2016
Date Written: August 31, 2016
In their foreign portfolio allocations, international mutual funds overweight industries that are comparatively large in their domestic stock market. Aggregate excess foreign industry allocations are sizeable, on average amounting to over 100% for the largest domestic industries. I label this novel form of home bias a “foreign industry bias”. The interpretation that differences in the industrial composition of stock markets provide a proxy for persistent information asymmetries in international markets finds robust support in the data, consistent with the theory of van Nieuwerburgh and Veldkamp (2009).
Keywords: International Mutual Funds, Portfolio Choice, Industry Structure, Foreign Bias
JEL Classification: G11, G15, G23
Suggested Citation: Suggested Citation
By C. Howard