Home bias revisited * Draft : February 16 , 2009 Geert Bekaert

We examine a large number of potential home bias determinants, including some novel ones, using extensive panel data. We distinguish between the actual home bias (overinvestment in domestic securities) and foreign investment bias, for which we propose a new measure. For foreign investment bias, we also demonstrate how “size biases” significantly affect the results. We find that the old empirical results based on the U.S. data alone do not generalize to the panel data set; information and familiarity variables and proxies for the degree of capital market openness play an important role in explaining both home and foreign investment biases. * We appreciate the comments and suggestions of Ricardo Brito, Bob Hodrick, Wei Jiang and participants at the Columbia Business School, Platinum Grove Asset Management, and Washington Area Financial Association work shops. Corresponding author: Geert Bekaert, 411 Uris Hall, 3022 Broadway, New York, New York, 10027; ph: (212)854-9156; fx: (212)316-9180; [email protected].