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H. Kent Baker and Leigh A. Riddick

Print publication date: 2012

Print ISBN-13: 9780199754656

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199754656.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 14 April 2021

The Home Bias Puzzle in Equity Portfolios

The Home Bias Puzzle in Equity Portfolios

(p.310) 15 The Home Bias Puzzle in Equity Portfolios
International Finance



Oxford University Press

This chapter reviews the recent literature on equity home bias and shows that people overinvest in domestic stocks relative to the theoretically optimal investment portfolio. The chapter examines different home bias measures and illustrates the extent and the evolution of equity home bias both with recent portfolio holdings data and longer time-series. Institutional-based and behavior-based explanations for the puzzle are considered and discussed. The chapter concludes that none of the proposed theories can explain the full extent of the bias by itself. International portfolio choice might very well be caused by a mixture of rational and irrational factors.

Keywords:   home bias, international portfolio diversification, investment costs, information effects

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