Home Bias and International Investment Patterns
Summary
Home bias refers to the persistent preference of investors for domestic assets over foreign ones, despite the theoretical benefits of international diversification. Empirical work demonstrates that this phenomenon endures across equities, bonds and direct investment, driven by a complex mix of informational asymmetries, transaction costs, regulatory constraints and behavioural factors. At the same time, global investment patterns have shifted, with emerging economies—particularly in the South—deepening ties among themselves and with advanced markets. These trends shape risk–return profiles for institutional and retail investors, influence exchange‐rate dynamics and bear on the design of capital‐flow regulations. Practical applications range from pension‐fund portfolio construction to macroprudential policy, highlighting the need for a nuanced understanding of cross‐border allocation decisions and their implications for financial stability and economic integration.
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Home Bias and International Investment Patterns publication trend
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Technical terms
Home bias: The tendency of investors to overweight domestic assets relative to their share in the world market portfolio.
International diversification: The practice of spreading investments across multiple countries to reduce portfolio risk.
Savings retention coefficient: A cross‐country metric derived from the correlation between national savings and investment used to gauge home bias.
South–South investment: Cross‐border capital flows between emerging or developing economies, distinct from flows involving advanced markets.
References
- Bilateral international investments: The big sur?. Journal of International Economics (2023).
- The home bias and the local bias: A survey. Management Review Quarterly (2020).
- Re-estimation of the savings retention coefficient in OECD countries: a new measure of home country bias. Journal of Economic Structures (2023).
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