Home Bias


DEFINITION of 'Home Bias'

The tendency for investors to invest in a large amount of domestic equities, despite the purported benefits of diversifying into foreign equities. This bias is believed to have arisen as a result of the extra difficulties associated with investing in foreign equities, such as legal restrictions and additional transaction costs.


Investing in foreign equities tends to lower the amount of systematic risk in a portfolio because foreign investments are less likely to be affected by domestic market changes.

However, investors from all over the world tend to be biased toward investing in domestic equities. For example, an academic study from the late 1980s showed that although Sweden possessed a capitalization that only represented about 1% of the world's market value of equities, Swedish investors put their money almost exclusively into domestic investments.

  1. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  2. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  3. Bias

    Biases are human tendencies that lead us to follow a particular ...
  4. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Market Risk

    The possibility for an investor to experience losses due to factors ...
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