Barriers to cross-border portfolio flows have come down substantially in the last decade across just about every country. Here in Canada, the elimination of the Foreign Property Rule over a decade ago laid the groundwork for truly global diversification in portfolios here at home. But despite the fact that portfolios are more globally diversified than ever, a home bias persists in some funds – a fact which has left analysts and academics scratching their heads for years. A new paper seeks to solve the so-called home-bias puzzle by looking at international mutual funds and the role played by “home biased managers.”
The paper – Is there a home field advantage in global markets? — will be presented at this week’s Northern Finance Association Conference, where Canadian Investment Review is proud to be a media sponsor for the fourth year in a row.
As authors Murali Jagannathan, Andrew Karolyi and Wei Jiao, observe:
At the same time, stocks domiciled in countries where the fund has a home advantage tend to outperform those held by other funds without home-biased managers and with investments in the same countries. The authors also find these managers benefit from on-the-ground information gained from operating in the country where they are making investments — that suggests they are benefiting from an informational advantage.
Read the full paper here.