Trust and local bias of individual investors

Ran Shao and Na Wang

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: We examine the effects of social trust on the local bias of individual investors. Using the trading records of Chinese retail investors, we find that investors with higher trust exhibit lower local bias in their stock portfolios, and this pattern holds under various robustness tests. We further show that trust helps accomplish greater portfolio diversification and reduces familiarity-based investment bias in general. These findings suggest that trust plays an important role in individual investors’ financial decisions, especially when they face unfamiliar investment opportunities.

Keywords: Trust; Local bias; Individual investors; Portfolio concentration; Information advantage; Familiarity bias (search for similar items in EconPapers)
JEL-codes: G11 G15 G41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002296

DOI: 10.1016/j.jbankfin.2021.106273

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