Equity Home Bias: A Review Essay

19 Pages Posted: 28 May 2020

See all articles by Kavous Ardalan

Kavous Ardalan

Marist College - School of Management

Date Written: July 2019

Abstract

This paper reviews the relatively more recent literature on equity home bias – the empirical finding that people overinvest in domestic stocks relative to the optimal investment portfolio implied by the modern portfolio theory. It reviews six broad classes of explanation of this puzzling phenomenon: (1) hedging home risks; (2) barriers to foreign investments; (3) information asymmetries; and (4) behavioral factors. The consensus is that none of the explanations can account for the full extent of the bias by itself, thus the home bias should be explained by a combination of rational and behavioral factors.

Keywords: Equity, Home Bias, Puzzle, Review

Suggested Citation

Ardalan, Kavous, Equity Home Bias: A Review Essay (July 2019). Journal of Economic Surveys, Vol. 33, Issue 3, pp. 949-967, 2019, Available at SSRN: https://ssrn.com/abstract=3608908 or http://dx.doi.org/10.1111/joes.12302

Kavous Ardalan (Contact Author)

Marist College - School of Management ( email )

Poughkeepsie, NY 12601-1387
United States
845-575-3000, x2989 (Phone)
845-575-3640 (Fax)

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