Home Bias
Investors everywhere hold far more of their own country's market than its share of the world would suggest. The pattern is universal, well documented, and only partly rational.
MadStockAlerts Research · Updated August 29, 2026
What to take away
- Domestic allocations far exceed the domestic share of global market capitalisation.
- The pattern appears in every country studied, not only in large ones.
- Some of it is rational: currency, tax, liabilities and information.
- Much of it is familiarity, which is not the same as information.
- Concentration in one economy is a real exposure whatever the reasons for it.
MAD Academy Training Video · 0:45
Your Country Is Not the Market
Investors everywhere hold far more of their own country than its share of world markets, which concentrates risk they already carry.
This lesson is part of a Stock Alerts + Tools plan.
The pattern
Investors in every country studied hold a share of their domestic market far above that market's weight in global capitalisation. The effect is large: allocations of seventy or eighty percent to a domestic market representing a small fraction of global capitalisation are common.
It has persisted despite the removal of most of the barriers once offered to explain it. Cross-border investing is now cheap, straightforward and available through a single fund, and the bias has narrowed rather than disappeared.
This is a description of a documented pattern, not a statement that any particular allocation is wrong. The right allocation depends on liabilities, currency and circumstances that vary by person.
Scroll the chart sideways to see all of it.
- Share of global market capitalisation
- Typical domestic allocation
The rational part
- Liabilities are usually domestic. Future spending in one currency is a genuine reason to hold assets in it.
- Currency risk is real, and hedging it costs money and introduces its own complexity.
- Tax treatment frequently favours domestic holdings, including through withholding on foreign dividends.
- Domestic companies with international revenue provide some global exposure without a foreign holding.
- Costs of foreign investing, while much lower than before, are not zero.
The fourth point is the strongest of the rational arguments and is also frequently overstated. Revenue exposure is not the same as market exposure: a domestic index remains driven by domestic rates, domestic policy and domestic sector composition whatever its constituents' sales mix.
The part that is not
Beyond the rational reasons sits familiarity. Domestic companies are known, their news is covered locally, and their products are visible, and this produces a sense of understanding that does not correspond to any informational advantage.
The most extreme version of this is concentration in an employer's stock, where the same salary, the same career and the same portfolio all depend on one company. Familiarity is at its highest there and the diversification is at its lowest.
Recency reinforces it. A domestic market that has outperformed for a decade makes international allocation look like a persistent cost, and the periods when the ranking reverses are long enough that the reversal is rarely anticipated.
What the exposure actually is
Whatever the reasons, a heavily domestic portfolio carries a set of concentrated exposures worth naming rather than leaving implicit.
| Exposure | What it means |
|---|---|
| One economy | One growth path, one labour market, one policy setting |
| One currency | The purchasing power of the whole portfolio moves together |
| One policy regime | One central bank and one fiscal authority |
| One market's sector mix | Indices differ enormously in what they are made of |
The last row is underappreciated. Two national indices can have completely different sector compositions, so a domestic allocation is also an implicit sector bet that nobody chose.
What a global weighting would look like
A market-capitalisation weighting is the neutral reference point rather than a recommendation: it is what a holder owning a slice of everything would hold, and it is the benchmark that a domestic tilt is a deviation from.
| Approximate share of global equity capitalisation | |
|---|---|
| United States | Well over half in recent years |
| Developed markets excluding the US | Roughly a quarter to a third |
| Emerging markets | Around a tenth |
Those shares move, sometimes substantially: the US share was far lower in earlier decades and the Japanese share was at one point the largest in the world. A weighting that looks obvious now has looked different before.
The point of the reference is not that anyone should hold it. It is that a domestic allocation is a deviation from it, and a deviation is worth being aware of as a decision rather than as a default.