Equity Home Bias Among Czech Investors: Experimental Approach
AbstractEquity home bias is a situation on equity market where domestic investors prefer invest too much into domestic equities despite the possible gains from diversification into foreign equities. Equity home bias can arise as a result of institutional or behavioral factors. In this paper I will compare the evidence with the prediction of the model of optimal portfolio with three different utility functions (Markowitz, Exponential and CRRA) the results of the investment experiment and the evidence from OECD (2009). The results have shown that in total the Czech investors are home biased (they hold 85 % of domestic equities in their equity portfolios). However, in experimental lab conditions were the students rather foreign biased. They have chosen only 14 % of Czech equities as opposed to the model recommendation of 22-54%. The possible reasons for foreign biasness in experimental conditions can be the absence of transaction and informational cost and explicit FX risk. Furthermore, I have discovered that the successful experimental investors have higher investment knowledge and that they trust in intuition.
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Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2011/17.
Date of creation: Aug 2011
Date of revision: Aug 2011
Investment experiment; equity home bias; behavioral finance; optimal investment portfolio;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
- NEP-CBE-2011-06-25 (Cognitive & Behavioural Economics)
- NEP-EXP-2011-06-25 (Experimental Economics)
- NEP-IFN-2011-06-25 (International Finance)
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