Despite the ongoing integration of the world’s economies and financial markets, pension funds everywhere continue to disproportionately skew their portfolios to domestic securities. They do so for many reasons, including regulatory barriers, asset-liability matching needs and the desire to avoid exchange-rate and political risks. However, as our research shows, such biases have tended to penalize investor returns in most countries.

For this study, the second in our series on the effects of home bias, we examined the industry concentrations, performance and return-to-risk profiles of the equity markets in France, Germany, Netherlands, Italy and Spain in the aftermath of the global financial crisis. For most of the 12 years reviewed, all five markets underperformed their respective international counterparts, as euro weakness and higher volatility took a major toll on risk-adjusted returns. As these findings indicate, maintaining a home bias in their asset allocations has been extremely costly for Eurozone investors.