OK, Xenophobia isn't really a behavioral bias, but Home Bias is its equivalent - the tendency of investors to favor their home markets over foreign ones and to damage their returns, or at least increase their risks, in the process.

Example

Home Bias is a preeminent form of a wider bias - familiarity - which often governs our preferences. It's used by advertisers to get people to buy their products. For example, the mere exposure effect refers to our preference for things we've been exposed to, even if we haven't actually used them ourselves. Hence repeated advertising plugs for products - remember, if it didn't work they wouldn't do it.

As recently as 2007 US based investors had 80% of their portfolios in US based stocks, even though international diversification would provide downside protection and upside returns. But it isn't really surprising - similar effects can be found regionally; investors gravitated to their local Baby Bell telcos after AT&T spun them off and there's a clear correlation between local news channels reporting about local businesses and share price movements - and that's independent of the events being reported on, which often happened some time before.
 

Causes

Home bias is about familiarity; we're more comfortable with what we're familiar with and much more comfortable with that which we're personally familiar with. To some extent it's an illusion of control effect - simply knowing of a firm doesn't mean we know how it works any better than other corporations we're not familiar with, but as in so many other behavioral issues, we much prefer stuff we've observed ourselves rather than relying on abstract statistics and faceless numbers.

There is some evidence to suggest that home bias is even more irrational than it seems - fund managers exhibiting the behavior seem to be particularly risk averse and biased towards information that's less than reliable. So managers affected seem particularly keen on charts, technical indicators and place significant faith in the prognostications of economic thought leaders. Although they don't, as far as I can tell, use soothsayers.

Mitigation

International diversification has significant risk reduction benefits over long periods but, more importantly, learning to analyze stocks in terms of their performance and not how familiar you are with them is a proper attitude for an investor. Even relatively small firms are too complex for outsiders to really understand, so fooling yourself that familiarity breeds knowledge is a one way ticket to losses.

Home bias added to the Big List of Behavioral Biases.