Do global equity mutual funds exhibit home bias?

We study a sample of U.S. global equity mutual funds that invest in markets around the world. While the existing literature shows significant home bias among investors, we find that U.S. global funds on average do not exhibit home bias but with cross-fund variation. Fund manager teams with more foreign educational background, younger fund managers, and those with MBA degrees tend to invest more in international markets. When sorting funds into deciles by the level of home bias, we find that both home- and foreign-biased funds tend to outperform medium decile funds and hold concentrated portfolios, supporting the information hypothesis for home and foreign bias. Further, the well-performing foreign-biased funds are much larger than other funds, indicating that there are no decreasing returns to scale among global equity mutual funds. (C) 2021 Elsevier B.V. All rights reserved.

Automated summary

Our study on U.S. global equity mutual funds reveals that, on average, there is no home bias but significant cross-fund variation. Fund manager teams with foreign educational background, younger managers, and those with MBA degrees tend to invest more internationally. Home-biased and foreign-biased funds tend to outperform medium decile funds and hold concentrated portfolios, supporting the information hypothesis for both types of bias. Additionally, high-performing foreign-biased funds are generally larger, suggesting no decreasing returns to scale in global equity mutual funds.