Behavioral Finance: The well documented “Equity home bias puzzle” refers to the fact that investors tend to hold poorly diversified portfolios by favoring domestic stocks over international stocks. However, I show that even holdings of international stocks exhibit a form of home bias. I find that U.S. mutual funds invest significantly more in countries that have a strong associated ethnic group population near the funds’ offices. Mutual funds that take advantage of the information generated by the local ethnic groups out-perform otherwise similar funds by more than 1.4% per quarter in their foreign holdings. This paper documents a new form of home bias, sheds light on a new information channel for foreign investment decisions, and contributes to the debate on whether mutual fund managers have skills.
See accompanying Bloomberg article-Where Is Your Fund Manager From?
Download paper here- ssrn.com
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More