Abstract
The well documented \Equity home bias puzzle refers to the fact that investors tend to hold poorly diversied portfolios by favoring domestic stocks over international stocks. However, I show that even holdings of international stocks exhibit a form of home bias. I nd that U.S. mutual funds invest signicantly more in countries that have a strong associated ethnic group population near the funds’ oces. Mutual funds that take advantage of the information generated by the local ethnic groups out-perform otherwise similar funds by more than 1.4% per quarter in their foreign holdings. This paper documents a new form of home-bias, shed light on a new information channel for foreign investment decisions, and contribute to the debate on whether mutual fund managers have skills.
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