Kaissar: U.S. Investors’ Home Bias Not Justified

“Despite all the attention heaped on U.S. stocks this year,” writes Bloomberg’s Nir Kaissar, “there’s been more to cheer overseas.”

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Kaissar explains that, even though data shows that overseas stocks are outperforming, U.S. investors suffer from “home bias”—that is, they are more comfortable with companies “in their own backyard than in far-off locales, so that’s where they park their money.” These investors focus on domestic market gauges (such as the Dow and the S&P 500), a bias which Kaissar argues is supported by the financial media.

Such a home bias, Kaissar argues, can become costlier as the years go by. “U.S. stocks,” he writes, “can’t continue beating their peers in other developed countries indefinitely. The growth of stocks, after all, depends on earnings growth, which in turn relies on GDP growth.” And GDP growth in the U.S., he says, has been tracking that of the rest of the world for nearly forty years. While, historically, U.S. stocks have gone through alternating periods of leading and lagging those of other developed countries, Kaissar says, “Then, as now, there was no reason to expect a lasting divergence between the two, and the trend eventually reversed.”

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