Revisiting the Home Bias Puzzle: Downside Equity Risk

37 Pages Posted: 22 Sep 2005 Last revised: 7 Apr 2011

See all articles by Rachel A.J. Pownall

Rachel A.J. Pownall

Tilburg University - Department of Finance; Maastricht University - Department of Finance

Roman Kräussl

Luxembourg School of Finance; Hoover Institution, Stanford University

Date Written: March 1, 2006


Deviations from normality in financial return series have led to the development of alternative portfolio selection models. One such model is the downside risk model, whereby the investor maximizes his return given a downside risk constraint. In this paper we empirically observe the international equity allocation for the downside risk investor using 9 international markets' returns over the last 34 years. Investors may think globally, but instead act locally, due to greater downside risk. The results provide an alternative view of the home bias phenomenon, documented in international financial markets.

Keywords: Asset Pricing, Home Bias, Downside Risk, Prospect Theory

JEL Classification: G11, G12, G15

Suggested Citation

Pownall, Rachel Ann Jane and Kraeussl, Roman, Revisiting the Home Bias Puzzle: Downside Equity Risk (March 1, 2006). Journal of International Money and Finance, Vol. 26, No. 7, 2007, Available at SSRN:

Rachel Ann Jane Pownall (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD

Roman Kraeussl

Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
+3524666445442 (Phone)


Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

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