Beliefs and the equity home bias

Xinxin Zhu, Peiran Jiao and Jichuan Zong

Economics Letters, 2024, vol. 244, issue C

Abstract: We investigate the belief-based mechanism that potentially drives the equity home bias puzzle using a novel experimental design. We find that geographical information causally shapes investor beliefs, leading to a home bias effect in beliefs. Participants expect higher returns and lower risk from local stocks compared to non-local ones. Loss probability strongly predicts risk perception, but its effect weakens when the stock is local. Yet, we do not find a home bias in investment choices.

Keywords: Home bias; Subjective belief distribution; Risk perception; Return expectation; Experiment (search for similar items in EconPapers)
JEL-codes: C99 D83 D84 D91 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524004671

DOI: 10.1016/j.econlet.2024.111983

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