Turning local: Home-bias dynamics of relocating foreigners

Bjarne Florentsen, Ulf Nielsson, Peter Raahauge and Jesper Rangvid

Journal of Empirical Finance, 2020, vol. 58, issue C, 436-452

Abstract: Using comprehensive data from Denmark, we study private investors’ preferences for domestic stocks. We compare the equity home bias of foreigners recently relocated to Denmark to the equity home bias of other investors. We find that home bias of recently relocated foreigners is lower than home bias of other investors. Our main result is that when relocated foreigners’ duration of stay increases, their home bias also increases. After 7–8 years, home bias of relocated foreigners does not differ from home bias of other investors. Our results imply that familiarity with domestic stocks develops dynamically with the length of stay in a given country. We discuss implications for explanations of the home-bias puzzle building on information asymmetries.

Keywords: Equity home bias; Individual investors; Relocating foreigners; Information advantage; Familiarity (search for similar items in EconPapers)
JEL-codes: D14 G11 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:58:y:2020:i:c:p:436-452

DOI: 10.1016/j.jempfin.2020.07.006

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