The equity home bias

Home bias, the empirical phenomenon that investors assign anomalously high weights to their own domestic assets, has puzzled academics for decades: financial theory predicts that an internationally well diversified portfolio of stocks and short-term bonds can reduce risk significantly without affecting expected return. Although the globalization of international equity markets has increased international investments, equity portfolios remain severely home biased today, and no single explanation seems to solve the puzzle completely. Professor Ian Cooper joined London Business School in 1978. He is Professor of Finance and has taught widely across all the programmes of the School.

Image courtesy of interviewee

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