“Home Bias Puzzle”. Is It a Puzzle or Not?
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Abstract
The benefits of international diversification have been well documented over the last decades. Despite this however, investors seem unwilling to exploit this opportunity in order to limit the risk of their portfolio and they continue to invest the largest percentage of their wealth in domestic assets. This phenomenon is called the Home Bias Puzzle and the given explanations for it have not been empirically proven to justify its existence.
The purpose of this paper is to present a literature review on the opinions and possible explanations about the home bias puzzle. Furthermore, concluding, it will try to answer whether the home bias puzzle is a puzzle or not.
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