One would not expect that returns from equity investment by some of the world’s most highly-sophisticated institutional investors would be unduly domestically-focused, to the detriment of returns, but research from FTSE Russll suggests exactly that.
We have known for a long time that pension funds place a large domestic weight on their equity allocations, relative to what Modern Portfolio Theory—which encourages diversification of assets to lower investment risks—might suggest. But when we measured the extent of home bias we found an enduring trend, with investors’ equity weightings in their home markets far in excess of what theory would suggest.
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