Home Bias
The tendency for investors to allocate a disproportionately large share of their portfolio to domestic assets, underweighting international opportunities.
What is Home Bias?
Home bias is a well-documented behavioral phenomenon in which investors hold far more of their own country's stocks and bonds than a globally diversified portfolio would suggest. Despite US investors having access to stocks across 50+ countries, surveys consistently show they allocate 70–80% of equity exposure to US companies, which represent roughly 60% of global market capitalization. Home bias limits geographic and currency diversification, concentrating risk in a single economy. The phenomenon persists even among sophisticated investors and is attributed to familiarity bias, information asymmetry, and currency risk aversion. Over long periods, home bias has cost investors meaningful diversification benefits.
Example
During 2000–2010, commonly called the 'Lost Decade' for US stocks, the S&P 500 produced a slightly negative real total return. Investors with a globally diversified portfolio capturing emerging market and international developed market returns would have significantly outperformed. An investor who avoided home bias and allocated 40% to international stocks per MSCI ACWI weights would have earned substantially higher returns over the period.
Source: MSCI — ACWI Index