Domestic and foreign bias in real estate mutual funds

Abstract

The purpose of the study is to seek a better understanding of the investment allocation behaviour of the real estate mutual funds by focusing on asset allocation at the country level. Analysing the country allocation of 553 real estate mutual funds domiciled in 20 countries, we attempt to trace how investment bias exists across countries and affects their country allocations. Our results evidence the existence of disproportionate country allocation to their domestic markets (domestic bias) and to each foreign market (foreign bias). We also find each bias is influenced by different sets of variables: real estate market influences for domestic bias and familiarity influences for foreign bias. This difference in factors influential for each bias in part explains the conflated relationship between the two biases.

Home Bias in Asian REIT Portfolio Investment Strategies

“…The greater significance of domestic assets in managed portfolios is generally explained by investor preferences for domestic over foreign assets (French and Poterba, 1991). This behavioral bias is even greater in real estate investments, where institutional investors (such as real estate mutual funds) normally prefer investing in the home country or in countries with which they are more familiar (Imazeki and Gallimore, 2009).…”

Organizational Isomorphism and Property Investment Decision-Making Amidst Disruptions: Evidence From Listed Property Trusts in New Zealand

“…In advancing the traditional view that posits the actions of property-investment decision-makers as predominantly based on the paradigm of rationality (Gallimore et al, 2000), the behavioural approach to decision-making has continued to emerge within the property literature (Imazeki & Gallimore, 2009;Waweru et al, 2014;Lowies et al, 2016). The basic assumption underpinning the emerging paradigm is that the property markets exist as a function of market actors and will adjust spontaneously to the influence of these actors (Keogh & D' Arcy, 1999).…”

“…The classical conceptualization of property investment decision-making posits a rational, logical process (Roberts & Henneberry, 2007;Farragher & Savage, 2008), wherein decision-makers have access to factual and complete information as they make optimal investment decisions in a perfect market environment (Roberts & Henneberry, 2007). However, scholars have argued that investment information is not static (Imazeki & Gallimore, 2009;Sah et al, 2010); thus, it is unrealistic to assume perfect market information. The assumption of humans as rational beings is now continually challenged by the emerging field of behavioural finance, which posits that investor behaviour is driven by many factors, including rational and irrational thinking (Waweru et al, 2014;Lowies et al, 2016).…”

Untitled

“…The consequences of this undiversification are explained by Nordén (2010) that home bias results in bad financial performance. There are ample evidences from researches that individual investors as well as institutions prefer local asset classes over the foreign ones, (Ke, Ng & Wang, 2010;Imazeki & Gallimore, 2009;Chan, Covrig & Ng, 2005;Kilka & Weber, 2000).…”