Investments, tenth edition

  Home-Country Bias 

 Home-country bias refers to the common tendency for investors to underweight foreign 

equities in their portfolio of risky assets. If investors allocated their stock investments 

across countries in proportion to outstanding equity, U.S. investors in 2011 would have 

placed only 36.4% of their equity in U.S. firms ( Table 25.1 ) with the remaining 63.6% held 

in foreign markets. Non-U.S. investors would have held a greater share of U.S. equities 

than domestic investors. But in fact, most investors show a pronounced bias toward hold-

ing stock in their home countries. 

 U.S. investors’ holdings of foreign stocks and long-term bonds and foreigners’ holdings 

of U.S stocks and long-term bonds in 2001 and 2011 were: