Despite the increased integration of the world’s economies and financial markets, studies show that pension funds worldwide continue to skew their portfolios to domestic securities. This paper examines the investment effects of home bias in the equity allocations of the Mexican pension fund market:
- Mexican pension funds have had a particularly large home bias in their equity allocations compared to other markets.
- An examination of the characteristics, performance and return-to-risk profiles of the equity market in Mexico from 2008 through September 2020 shows that maintaining a home bias has been costly for most countries in the study, including Mexico.
- The analysis also highlights the effects of a depreciating Mexican peso on returns.