Why home bias matters
It can reflect familiarity and liability matching but may reduce geographic, sector, currency, and political diversification.
How it is applied
Investors compare domestic weights with global opportunity, liabilities, spending currency, tax, access, governance, and hedging costs.
Portfolio example
An investor holds 80% domestic equities even though the home market represents 5% of global capitalization.
How to interpret it
Some home allocation is rational when liabilities and information are local. The appropriate weight is investor-specific.
Limitations and common misconceptions
Foreign investment adds currency, tax, custody, legal, and governance risk. Global indices may also be concentrated.
Sources and further reading
- The Behavioral Biases of IndividualsCFA Institute
- Behavioral Patterns of U.S. InvestorsU.S. Securities and Exchange Commission