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Are investors really home-biased when investing at home?

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  • Oehler, Andreas
  • Wendt, Stefan
  • Horn, Matthias

Abstract

Investors who only invest in their domestic market are typically referred to as being home-biased. We refer to firm-level internationalization and call into question whether investing in domestic stock indices actually leads to home bias. We use three measures of firm-level internationalization based on percentages of foreign sales, employees in foreign countries, and foreign tax payments. We aggregate firm-level results to determine the degree of internationalization of German, French, UK and US stock indices. French and UK stock indices exhibit the largest degree of internationalization. The German index provides slightly less internationalization, whereas internationalization of the US index is lowest but nonetheless considerable. This means that investors who invest in their domestic market do not necessarily suffer from home bias. Instead, investing in domestic stock indices more likely prevents investors from a home bias instead of entrapping them to insufficient portfolios.

Suggested Citation

  • Oehler, Andreas & Wendt, Stefan & Horn, Matthias, 2017. "Are investors really home-biased when investing at home?," Research in International Business and Finance, Elsevier, vol. 40(C), pages 52-60.
    • Handle: RePEc:eee:riibaf:v:40:y:2017:i:c:p:52-60
    DOI: 10.1016/j.ribaf.2016.12.003
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    5. Syed Aliya Zahera & Rohit Bansal, 2018. "Do investors exhibit behavioral biases in investment decision making? A systematic review," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 10(2), pages 210-251, May.
    6. Nuhiu Artor & Peci Bedri & Aliu Florin, 2022. "Assessing the diversification risk of a single equity market: evidence from the largest European stock indexes," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 58(1), pages 3-16, March.
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    More about this item

    Keywords

    Home bias; International diversification; Internationalization; Investor information; Retail investors; Stock market index;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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