Investors typically overweight domestic equities, reflecting a persistent home bias. This paper studies a setting in which domestic holdings carry more risk than foreign holdings do, giving rise to a not-in-my-backyard effect in portfolio choice that could attenuate or even reverse this home bias. I formalize a model in which investors tilt away from firms that contribute to resource constraints in the economies to which they are most exposed, and I examine this empirically in the context of water: a critical, geographically constrained input whose scarcity varies across firms and locations. Domestic ownership is lower for firms contributing to water scarcity at headquarters, a pattern that does not hold for foreign ownership and is therefore difficult to reconcile with uniform risk pricing. A one-standard deviation increase in local water scarcity is associated with a 14.5 to 45.4 percent decline in portfolio share relative to the mean domestic position, and the asymmetry is stable over long horizons, inconsistent with a short-lived informational frictions explanation. The results are consistent with portfolio allocations shifting away from firms that contribute most to binding local constraints as resource scarcity intensifies.
