Is home bias biased? New evidence from the investment fund sector

Claudia Lambert, Luis Molestina Vivar and Michael Wedow

No 2924, Working Paper Series from European Central Bank

Abstract: Investment funds hold a disproportionately larger fraction of domestic relative to foreign stocks. Stock market development and familiarity (language and distance) are considered key determinants for home bias. The literature neglects however that investors often invest in foreign funds domiciled in financial centers. We use a “look-through approach” to account for this misclassification. First, we find substantially smaller home bias estimates compared to those in the literature. Second, the explanatory power of plausible home bias determinants is lower than previously documented. Third, familiarity only plays a meaningful role when investors are households, highlighting the role of investor sophistication. JEL Classification: G11, G15, G23

Keywords: cross-border portfolio; financial centers; home bias; investment funds (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-fdg
Note: 1559770
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2924~b1233846e9.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242924

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().