Title: Home bias: taking comfort in what you know?

Authors: Lucy F. Ackert, Bryan K. Church

Addresses: Michael J. Coles College of Business, Kennesaw State University, 1000 Chastain Road, Kennesaw, GA 30144, USA; Research Department, Federal Reserve Bank of Atlanta, Atlanta, GA 30309-4470, USA. ' College of Management, Georgia Tech., Atlanta, GA 30332-0520, USA

Abstract: Research suggests that informational differences, including familiarity with domestic securities, underlie home equity bias. We suggest that home bias can arise more subtly. The bias may simply occur because individuals are more comfortable with domestic companies, irrespective of information or knowledge differences. Using an experimental method, we find that individuals prefer domestic equity opportunities – as a default strategy. Individuals do not invest more because they are overly optimistic about the performance of domestic securities. When objective, historical information is made available on the set of investment opportunities, expectations adjust accordingly and individuals more readily invest in international securities.

Keywords: equity home bias; familiarity; international diversification; comfort-seeking; behavioural finance; domestic securities; domestic equity opportunities; investment opportunities; portfolio selection; domestic assets.

DOI: 10.1504/IJBAF.2009.027450

International Journal of Behavioural Accounting and Finance, 2009 Vol.1 No.2, pp.152 - 166

Published online: 25 Jul 2009 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article