Question

According to former Federal Reserve Chairman Alan Greenspan, since the mid-1990s, the U.S. has entered a new phase of globalization that is characterized by decline in what economists call "home bias." What does the term "home bias" means?

Answer 1

Answer:

Home bias refers to the preference of the investors to make financial investment in home market even if investment in foreign equities yield better returns and less risk. Various factors are leading to home bias like foreign investment requires complicated legal restrictions and transitional costs. secondly domestic market is more familiar. Though it affects diversification and returns, it is still favorable in most of the countries.