There’s No Place Like Home: Investors’ Home Bias in Germany, 1898-1934

This article studies investors’ expectations and investment decisions in regional stock exchanges in Germany from 1898 to 1934. Investments in stocks are particularly interesting, because research has identified a gap between model predictions of individual investment behaviour and actual investment behaviour. So far there is little information about individual investors or their characteristics in historical periods. To improve the interpretation of investors’ stock market behaviour, I look at investment behaviour and influences on that behaviour over time. I examine data on investors’ characteristics to understand local investment biases using data from regional stock exchanges in Germany from 1898-1934. The statistical analysis first indicates that local investment was clearly important during this period. Then, challenging these findings and analysing different sub-samples, it is suggested that investors’ home bias is potentially overestimated. Previous studies, which found evidence of local investment biases in Germany have presumably overestimated this effect.