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Home Bias

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Home Bias
The tendency for investors to invest in a large amount of domestic equities, despite the purported benefits of diversifying into foreign equities.
    
This bias is believed to have arisen as a result of the extra difficulties associated with investing in foreign equities, such as legal restrictions and additional transaction costs.  Investing in foreign equities tends to lower the amount of systematic Risk in a Portfolio because  foreign investments are less likely to be affected by domestic market changes.
    
However, investors from all over the world seem to be biased toward investing in home equities. For example, an academic study from the late 1980s showed that although Sweden possessed a capitalization that only represented about 1% of the world's Market value of equities, Swedish investors put their money almost exclusively into domestic investments.
Posted by  Privatebanking.com
 
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