A Measure of Pure Home Bias

Review of Finance, Forthcoming

55 Pages Posted: 1 Jun 2015 Last revised: 6 May 2018

See all articles by Ian A. Cooper

Ian A. Cooper

London Business School

Piet Sercu

FEB at KU Leuven

Rosanne Vanpee

KU Leuven Faculty of Economics and Business

Date Written: January 3, 2017


The literature on international equity holdings distinguishes between home bias (overweighting of home stocks) and foreign bias (relative underweighting for more 'distant' countries). The two biases can be integrated into one distance-based model. We define pure home bias as the excess of home bias relative to this model, and find pure home bias only in emerging markets. Countries with high tax rates and low credit standing have higher pure home bias, and more development comes with lower distance aversion. Methodologically, the choice of portfolio bias measure matters. We find the best measure to be a covariance-based measure relative to the world average.

Keywords: Home bias, foreign bias, international equity investment

JEL Classification: G15, G18, G30, G38, F3

Suggested Citation

Cooper, Ian Anthony and Sercu, Piet M. F. A. and Vanpee, Rosanne, A Measure of Pure Home Bias (January 3, 2017). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2612829 or http://dx.doi.org/10.2139/ssrn.2612829

Ian Anthony Cooper (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 171 262 5050 (Phone)

Piet M. F. A. Sercu

FEB at KU Leuven ( email )

Naamsestraat 69
Faculty of Economics and Business
Leuven, 3000
+32 16 32 67 56 (Phone)
+32 16 32 67 32 (Fax)

Rosanne Vanpee

KU Leuven Faculty of Economics and Business ( email )

Naamsestraat 69
Leuven, B-3000

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