Beliefs and the equity home bias

Xinxin Zhu; Peiran Jiao; Jichuan Zong

doi:10.1016/j.econlet.2024.111983

Beliefs and the equity home bias

Xinxin Zhu, Peiran Jiao, Jichuan Zong^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

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.

Original language	English
Article number	111983
Journal	Economics Letters
Volume	244
DOIs	https://doi.org/10.1016/j.econlet.2024.111983
Publication status	Published - 1 Nov 2024

JEL classifications

c99 - Design of Experiments: Other
d83 - "Search; Learning; Information and Knowledge; Communication; Belief"
d84 - "Expectations; Speculations"
d91 - "Intertemporal Consumer Choice; Life Cycle Models and Saving"

Keywords

Experiment
Home bias
Return expectation
Risk perception
Subjective belief distribution

Access to Document

10.1016/j.econlet.2024.111983

Cite this

@article{004af9611b3b4026bbabc37fd3f41b0d,

title = "Beliefs and the equity home bias",

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 = "Experiment, Home bias, Return expectation, Risk perception, Subjective belief distribution",

author = "Xinxin Zhu and Peiran Jiao and Jichuan Zong",

note = "Data availability Data will be made available on request. ",

year = "2024",

month = nov,

day = "1",

doi = "10.1016/j.econlet.2024.111983",

language = "English",

volume = "244",

journal = "Economics Letters",

issn = "0165-1765",

publisher = "Excerpta Medica, Elsevier Science",

}

TY - JOUR

T1 - Beliefs and the equity home bias

AU - Zhu, Xinxin

AU - Jiao, Peiran

AU - Zong, Jichuan

N1 - Data availability Data will be made available on request.

PY - 2024/11/1

Y1 - 2024/11/1

N2 - 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.

AB - 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.

KW - Experiment

KW - Home bias

KW - Return expectation

KW - Risk perception

KW - Subjective belief distribution

U2 - 10.1016/j.econlet.2024.111983

DO - 10.1016/j.econlet.2024.111983

M3 - Article

SN - 0165-1765

VL - 244

JO - Economics Letters

JF - Economics Letters

M1 - 111983

ER -

Beliefs and the equity home bias

Abstract

JEL classifications

Keywords

Access to Document

Fingerprint

Cite this