An academic paper awaiting publication poses a multi-trillion-dollar question: What are the most important determinants of U.S. investment in the equity of foreign firms?

Two of three favorite explanations for home bias do not withstand scrutiny, claim the report’s co-authors.

John Ammer at the Federal Reserve Board, Sara Holland at the University of Georgia, and David Smith and Frank Warnock at the University of Virginia base their findings on U.S. Treasury data used to calculate foreign holdings by U.S. residents. They relied on a confidential benchmark survey of company-level data conducted in 1997 by the U.S. Treasury Department and the Federal Reserve. Such granular detail on investor behavior is extremely rare and it cried out for the scholars’ attention. Conclusions shed overdue light and stand the test of time, they insist.