The French home bias: a costly and documented distortion
The phenomenon of home bias — investors' marked preference for domestic assets — is particularly pronounced in France. According to a study by the Bank of France (2022), French retail investors hold on average 68% of their stocks in French securities, while France represents only about 3% of the global stock market capitalization (source: MSCI, April 2024).
This extreme overweighting is a well-known bias in behavioral finance (Fama & French, 1993), but it remains costly. Indeed, international diversification is a major lever for reducing unsystematic risk and improving the risk/return profile. Yet, the average French portfolio continues to concentrate its investments on a relatively narrow market, exposed to specific risks.
Comparative performance over 20 years: CAC40 vs S&P500 vs MSCI World
To measure the quantified impact of this bias, let’s compare the performance of major indices over the period 2004-2024:
| Index | Total Performance (dividends reinvested) | Average Annual Performance (CAGR) |
|---|---|---|
| CAC40 | +208% | 6.0% |
| S&P500 (USA) | +618% | 10.4% |
| MSCI World (22 developed countries) | +420% | 8.5% |
The figures are telling: a 100% CAC40 investor saw their capital multiplied by 3.1 while an investor exposed to the S&P500 saw it multiplied by 7.2 and a diversified investor on the MSCI World by 5.2. The American outperformance is major, but international diversification (MSCI World) remains superior to France alone.