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Turning local: Home-bias dynamics of relocating foreigners

Author

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  • Florentsen, Bjarne
  • Nielsson, Ulf
  • Raahauge, Peter
  • Rangvid, Jesper

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.

Suggested Citation

  • Florentsen, Bjarne & Nielsson, Ulf & Raahauge, Peter & Rangvid, Jesper, 2020. "Turning local: Home-bias dynamics of relocating foreigners," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 436-452.
    • Handle: RePEc:eee:empfin:v:58:y:2020:i:c:p:436-452
    DOI: 10.1016/j.jempfin.2020.07.006
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    More about this item

    Keywords

    Equity home bias; Individual investors; Relocating foreigners; Information advantage; Familiarity;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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