THE EQUITY HOME BIAS: CONTRASTING AN INSTITUTIONAL WITH A BEHAVIORAL EXPLANATION

Gerlinde Fellner () and Boris Maciejovsky

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: An empirically well-established finding is that equity portfolios are concentrated in the domestic equity market of the investor. Previous theoretical and empirical analyses have mainly focused on institutional explanations and largely neglected individual behavior. In this study we report the results of an experiment in which we contrast institutional with behavioral explanations by comparing asymmetric information to social identity. Our results show that social forces, triggered by group a_liation, drive underdiversified and domestically biased portfolio allocations. Moreover, social identity explains the observed behavior equally well as asymmetric information. We also find that individuals are spuriously more optimistic toward the performance of domestic firms.

Keywords: investment decisions; behavioral finance; experimental economics; international economics; behavioral decision making (search for similar items in EconPapers)
JEL-codes: C91 F30 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-cfn and nep-pke
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