Domestic Versus International Portfolio Selection: A Statistical Examination of the Home Bias

Larry R. Gorman*, Bjørn N. Jørgensen

*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review


The observed international home bias has traditionally been viewed as an anomaly. This paper provides statistical evidence contrary to this view within a mean-variance framework. Two methods of estimating the expected return and covariance parameters are investigated:(i) the traditional Markowitz approach, and (ii) the Bayes-Stein" shrinkage" algorithm. In-sample tests reveal that neither the Markowitz tangency allocation vectors nor the Bayes-Stein tangency allocation vectors are significantly different than a 100% domestic allocation (ie extreme home bias). These results are robust to the shorting of equity and across foreign exchange hedge strategies. The paper also reports out-of-sample tests with a view toward investment performance. Typically, a 100% domestic allocation outperforms both the Bayes-Stein and Markowitz tangency portfolios.
TidsskriftMultinational Finance Journal
Udgave nummer3/4
Sider (fra-til)131-166
Antal sider36
StatusUdgivet - 2002
Udgivet eksterntJa


  • Efficient allocation
  • Foreign exchange hedging
  • Home bias
  • International allocation
  • Portfolio