Home Country Bias in Stock Market Investing

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Vanguard has a new research paper about global asset allocation. One of their findings was that market-cap-weighted indexed portfolios provided higher returns and lower volatility than the average actively managed fund. Thus, they suggest that a good starting point for all investors is a portfolio that is weighted according to the world’s relative market values.

However, in every country that they examined, investors on average had a home-country bias, tending to own more equity from the country they live in than the market-cap weighting would suggest. The chart below is rather striking. Found via Reformed Broker and Abnormal Returns.



Americans on average hold roughly 80% in US stocks, while the US market makes up 50% of the global market. However, the average Canadian resident holds roughly 60% in Canadian stocks while only making up 3% of the global market. Australian residents hold roughly 66% in Australian stocks while only making up 2% of the global market. I find this very interesting.

This is where I should state proudly that my stock holdings are split 50% US and 50% International, with equal amounts of the Vanguard Total US ETF (VTI) and Vanguard Total International ETF (VXUS) or their mutual fund equivalents. However, I admit that I do worry about the political and economic environments of other countries, especially given current events. On the other hand, I worry that I am being influenced by recent past performance. I usually end up telling myself that I am buying the haystack and letting the markets work themselves out over the long run.

The Vanguard paper also offers a guide to weighing various factors in deciding the amount of your home bias. Here’s a summary chart:


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  1. This makes perfect sense. International equity introduces additional risk/volatility through exchange rates.

    I also wonder, are international etfs treated differently come tax time?

  2. I look at the top 10 holdings for VXUS and it shows companies like Nestle, Samsung, Toyota etc. Don’t these companies have a bunch of exposure to the US economy? I wonder in this age of globalization, what domestic and foreign mean anyway.

  3. Interesting article Jonathn. I think that in an age where the world is so interconnected, it seems that things are very much correlated a lot. This will be the case, until something happens to cease those correlations. Given the global nature of things, I thought about the global flow of capital, people and ideas. And I asked Vanguard and Josh Brown the following questions on Twitter ( not to be a smart mouth, but to see how they think)

    If I am a European, who works in North America for an Asian company, and I have 80% exposure to US stocks, am I biased or unbiased?

    • It would be more interested to know what the effect on actual long-term returns would be for say a Canadian vs. Australian. It might not be that much different perhaps even though the home bias is strong. For a US person, having a 60/40 or even 80/20 home bias might not mean much over the next 20 years. Or it might, I have no idea 🙂

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