Review of Finance 2026
Is Home Bias Biased? New Evidence from the Investment Fund Sector
Abstract
Investment funds hold disproportionately more domestic than foreign stocks, which has been attributed to stock market development and familiarity factors such as language and distance. However, the literature typically assumes that funds represent investors in their country of incorporation, neglecting the substantial allocation of investors’ assets to foreign funds domiciled in financial centers. Using a novel “look-through approach” that combines supervisory holdings statistics with granular security-level fund portfolios, we provide a more accurate view of investors’ indirect equity allocations, independent of the fund’s legal country of incorporation. Our findings reveal three key insights. First, home bias estimates are significantly smaller than previously documented, reflecting greater geographical portfolio diversification through investment funds. Second, in most euro area countries, home bias is primarily driven by country-specific rather than common-currency preferences. Third, familiarity plays a larger role in cross-border investments for households than for institutional fund investors, highlighting the importance of investor sophistication.
- DOI
- 10.1093/rof/rfag028
- Language
- en
- Sources
- crossref