Revisiting the home bias puzzle: Downside equity risk

R.A.J. Campbell*, R. Kraeussl

*Corresponding author for this work

Research output: Contribution to journalArticleProfessional


Deviations from normality in financial return series have led to the development of alternative portfolio selection models. One such model is the downside risk model, whereby the investor maximizes his return given a downside risk constraint. In this paper, we empirically observe the international equity allocation for the downside risk investor using nine international markets' returns over the last 34 years. The results hold for both daily and monthly data; and also from an international perspective. Due to greater downside risk, investors may think globally, but instead act locally. The model's results therefore provide an alternative view of the home bias puzzle.
Original languageEnglish
Pages (from-to)1239-1260
Number of pages21
JournalJournal of International Money and Finance
VolumeNov 07
Issue number26
Publication statusPublished - 1 Jan 2007


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