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Home bias in foreign investment decisions

Dongmin Ke, Lilian Ng and Qinghai Wang
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Dongmin Ke: Department of Economics and Finance, College of Business and Public Administration, Kean University, Union, USA
Lilian Ng: School of Business Administration, University of Wisconsin-Milwaukee, Milwaukee, USA
Qinghai Wang: College of Management, Georgia Institute of Technology, Atlanta, USA

Journal of International Business Studies, 2010, vol. 41, issue 6, 960-979

Abstract: We analyze the US equity holdings of more than 3000 non-US-based mutual funds from 22 countries and find robust evidence that fund managers strongly prefer to invest in stocks of US firms that have presence in their home country. This “home bias” is independent of the degree of global involvement and visibility of these US firms. While these firms have significantly greater exposure to local equity markets, their local presence offers little information advantage to local fund managers. Our findings suggest that the lack of international diversification is more serious than currently documented in the literature.

Date: 2010
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