Reducing the home bias in equity investments
A broad global recovery and the introduction of LTCG tax improves the case for international diversification
For most of the 20th century, finance theory was built on the assumption that market participants are rational. It was one of the key assumptions of the efficient markets hypothesis (EMH), a theory that became the centre of attention for decades of empirical research in financial economics. However, in the 1990s researchers uncovered a series of anomalies and biases that challenged the validity and reliability of EMH, leading to the birth of behavioural finance as an independent area of research. Among the several biases discovered, one remains a puzzling global phenomenon: the home bias.