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A Return-Based Approach to Identify Home Bias of European Equity Funds

43 Pages Posted: 27 Feb 2016 Last revised: 8 Aug 2017

Moritz Maier

Friedrich-Alexander-Universität Erlangen-Nürnberg (FAU)

Hendrik Scholz

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg

Date Written: August 4, 2017


This paper introduces a return-based approach to studying a possible home bias of equity funds by estimating their exposures in their home countries. We first confirm the robustness of our approach using simulated portfolios with different proportions of domestic and foreign stocks. The empirical analysis examines equity funds domiciled in fifteen European countries that invest in European stocks. We examine individual funds as well as portfolios comprising funds that are all domiciled in a particular country. Our findings reveal that the portfolios of four domiciles show a significant home bias. Moreover, we observe that in seven domiciles more than one quarter of the individual funds are home-biased. These results are robust when controlling for fund-specific benchmarks or for the average country exposures of all funds in our final sample. Finally, a home bias of individual funds is not related to superior performance, but actually results in higher investment risk consistent with underdiversification.

Keywords: Home Bias, Equity Mutual Funds, Market Conditions, Fund Performance

JEL Classification: G11, G12, G14, G23

Suggested Citation

Maier, Moritz and Scholz, Hendrik, A Return-Based Approach to Identify Home Bias of European Equity Funds (August 4, 2017). Available at SSRN: or

Moritz Maier (Contact Author)

Friedrich-Alexander-Universität Erlangen-Nürnberg (FAU) ( email )

Lange Gasse 20,

Hendrik Scholz

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg ( email )

Finance and Banking
Lange Gasse 20
Nürnberg, Bavaria 90403
0049-911-5302649 (Phone)
0049-911-5302466 (Fax)


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