A cultural explanation of the foreign bias in international asset allocation

S Beugelsdijk, B Frijns

Research output: Contribution to journalArticleAcademicpeer-review


This paper examines the foreign bias in international asset allocation. Following extant literature in behavioral finance, we argue that a society’s culture and the cultural distance between two markets play an important role in explaining the foreign bias. In particular, we hypothesize that the degree of a nation’s uncertainty avoidance affects the foreign bias (more uncertainty-avoiding countries allocate less to foreign markets), as does the degree of a country’s individualism (in individualistic countries performance is more directly attributed to a person and less to teams, causing these individuals to be more aggressive in their foreign asset allocations). We further expect that the degree of cultural distance between two countries affects the amount of money allocated to that market. Based on extensive robustness analyses, we find support for our hypotheses on the role of culture in international asset allocation.
Original languageEnglish
Pages (from-to)2121-2131
Number of pages11
JournalJournal of Banking & Finance
Issue number9
Publication statusPublished - Sept 2010
Externally publishedYes


  • Culture
  • Foreign bias
  • Home bias
  • International asset allocation


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