This paper addresses a correlation puzzle in the financial gravity literature by taking into account a return‐chasing motive previously under‐researched as determinants of cross‐border asset holdings. I estimate a financial gravity equation to explain US investors' behaviour and confirm that even with the return chasing motive, the correlation puzzle remains unsolved. Furthermore, the data give a limited support for the return‐chasing motive. I find that USA's foreign asset holdings cannot be well explained by the correlation structure and excess returns. Copyright © 2013 John Wiley & Sons, Ltd.