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Are Investors Really Home-Biased when Investing at Home?
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International Diversification, Index, Home Bias
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We call into question whether investing in domestic stock indices leads to investors’ home bias. Therefore, we analyze percentages of foreign sales, employees in foreign countries, and foreign tax payments for German, French, UK and US stock index constituents. We find that these firms exhibit considerable degrees of firm-level internationalization. We conclude that investors who choose to invest in domestic stock indices are considerably influenced by international economic affairs like foreign sales market, labor market, and tax conditions. This means that investing in domestic stock indices more likely prevents from home bias instead of entrapping investors to insufficient portfolios.