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Home- Market- Bias! Investment behavior from the perspective of behavioral economics in the Germany stock market

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  • Pitterle, Claudia

Abstract

Studies of the investor culture of both private and institutional German investors show a clear overweighting of German equity portfolios compared with international equity portfolios. This overweighting does not stop at institutional investors. It reduces returns and leads to increased risks in the long run. Explanations for this lie in heuristics and distorted perceptions, also called home bias and overconfidence effect, which lead to this investor behavior. This article describes these phenomena from the perspective of behavioral economics using heuristics.

Suggested Citation

  • Pitterle, Claudia, 2022. "Home- Market- Bias! Investment behavior from the perspective of behavioral economics in the Germany stock market," MPRA Paper 117698, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117698
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    References listed on IDEAS

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    1. Harald Hau & Helene Rey, 2008. "Home Bias at the Fund Level," American Economic Review, American Economic Association, vol. 98(2), pages 333-338, May.
    2. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    3. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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