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What is home asset bias and what might be its cause?

What is home asset bias and what might be its cause?

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Answer:

Home assrt bias is the ability for investors to invest the majority of their portfolio in their opearting countries in the form of domestic equities. It was originally believed to have come into existence as a result of the extra difficulties associated with investing in foreign assets , because of legal restrictions and additional transaction costs

The causes maybe

(1) transaction costs affecting expected returns,

(2) perceived riskiness of foreign assets affecting standard deviations

(3) omitted assets affecting correlations.

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