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Abstract:
Alfred Cowles' (1934) test of the Dow Theory apparently provided strong evidence against the ability of Wall Street's most famous chartist to forecast the stock market. In this paper, we review Cowles' evidence and find that it supports the contrary conclusion -- that the Dow Theory, as applied by its major practitioner, William Peter Hamilton over the period 1902 to 1929, yielded positive risk-adjusted returns. A re-analysis of the Hamilton editorials suggests that his timing strategies yield high Sharpe ratios and positive alphas. Neural net modeling to replicate Hamilton's market calls provides interesting insight into the nature and content of the Dow Theory. This allows us to examine the properties of the Dow Theory itself out-of-sample.

Abstract:
This paper examines the investment decisions of older individual investors. We find that older and experienced investors are more likely to follow "rules of thumb" that reflect greater investment knowledge. However, older investors are less effective in applying their investment knowledge and exhibit worse investment skill, especially if they are less educated, earn lower income, and belong to minority racial/ethnic groups. Overall, the adverse effects of aging dominate the positive effects of experience. These results indicate that older investors' portfolio decisions reflect greater knowledge about investing but investment skill deteriorates with age due to the adverse effects of cognitive aging.

Older individual investors, cognitive aging, investment experience, learning, rules of thumb, investment skill

Abstract:
This study shows that U.S. individual investors hold under-diversified portfolios, where the level of under-diversification is greater among younger, low-income, less-educated, and less-sophisticated investors. The level of under-diversification is also correlated with investment choices that are consistent with over-confidence, trend-following behavior, and local bias. Furthermore, investors who over-weight stocks with higher volatility and higher skewness are less diversified. In contrast, there is little evidence that diversification is constrained by portfolio size or transaction costs. Under-diversification is costly to most investors, except for a small subset of investors who under-diversify because of superior information.

Individual investors, diversification, local bias, over-confidence, trend-following behavior

Abstract:
This study shows that U.S. individual investors hold under-diversified portfolios, where the level of under-diversification is greater among younger, low-income, less-educated, and less-sophisticated investors. The level of under-diversification is also correlated with investment choices that are consistent with over-confidence, trend-following behavior, and local bias. Furthermore, investors who over-weight stocks with higher volatility and higher skewness are less diversified. In contrast, there is little evidence that portfolio size or transaction costs constrains diversification. Under-diversification is costly to most investors, but a small subset of investors under-diversify because of superior information.

Individual investors, diversification, over-confidence, trend-following behavior, local bias.

Abstract:
This paper shows that the diversification choices of individual investors influence stock returns. A zero-cost portfolio that takes a long (short) position in stocks with the least (most) diversified individual investor clientele generates an annual, risk-adjusted return of 5-9%. This spread reflects the combined effects of sentiment-induced mispricing, narrow risk framing, and asymmetric information, where the sentiment effect is the strongest. Furthermore, the influence on returns is stronger among smaller, low institutionally owned, and hard-to-arbitrage stocks. These results are robust to concerns about relatively short sample size, improper factor model specification, slow information diffusion, and high transactions costs.

Abstract:
This paper shows that the diversification choices of individual investors influence stock returns. A zero-cost portfolio that takes a long (short) position in stocks with the least (most) diversified individual investor clientele generates an annual, risk-adjusted return of 5-9%. This spread reflects the combined effects of sentiment induced mispricing, narrow risk framing, and asymmetric information, where the sentiment effect is the strongest. Furthermore, the influence on returns is stronger among smaller, low institutionally owned, and hard-to-arbitrage stocks. These results are robust to concerns about relatively short sample size, improper factor model specification, slow information diffusion, and high transaction costs.

Individual investors, Under-diversification, Narrow risk framing, Investor sentiment, Information asymmetry, Asset pricing, Arbitrage costs

Abstract:
This study shows that people's propensity to gamble and their investment decisions are correlated. At an aggregate level, individual investors prefer stocks with lottery features, and like lottery demand, the demand for lottery-type stocks increases during economic downturns. In the cross-section, socioeconomic factors that induce greater expenditure in lotteries are associated with greater investment in lottery-type stocks. Further, these investment levels are higher in regions with favorable lottery environments. Because lottery-type stocks under-perform, gambling-related under-performance is greater among low-income investors who excessively overweight lottery-type stocks. Collectively, these results indicate that state lotteries and lottery-type stocks attract very similar socioeconomic clienteles.

Abstract:
This study shows that people's propensity to gamble and their investment decisions are correlated. At an aggregate level, individual investors prefer stocks with lottery features, and like lottery demand, the demand for lottery-type stocks increases during economic downturns. In the cross-section, socioeconomic factors that induce greater expenditure in lotteries are associated with greater investment in lottery-type stocks. Further, these investment levels are higher in regions with favorable lottery environments. Because lottery-type stocks under-perform, gambling-related under-performance is greater among low-income investors who excessively overweight lottery-type stocks. Collectively, these results indicate that state lotteries and lottery-type stocks attract very similar socioeconomic clienteles.

Individual investors, lottery-type stocks, skewness preference, gambling

Abstract:
We study stock holdings and trading behavior of more than 60,000 households and find evidence consistent with dividend clienteles. Retail investor stock holdings indicate a preference for dividend yield that increases with age and decreases with income, consistent with age and tax clienteles, respectively. Trading patterns reinforce this evidence: Older, low-income investors disproportionally purchase stocks before the ex-dividend day. Furthermore, among small stocks, the ex-day price drop decreases with age and increases with income, consistent with clientele effects. Finally, consistent with the behavioral attention hypothesis, we document that older and low-income investors purchase stocks following dividend announcements.

Retail investors, Dividend clienteles, Dividend events, Dividend taxation, Attention hypothesis

Abstract:
This study examines whether the framing mode (narrow versus broad) influences the stock investment decisions of individual investors. Motivated by the experimental evidence, which suggests that separate decisions are more likely to be narrowly framed than simultaneous decisions, we propose trade clustering as a proxy for narrow framing. Using this framing proxy, we show that investors who execute more clustered trades exhibit weaker disposition effects and hold better diversified portfolios. We also find that the degree of trade clustering is related to investors' stock preferences and portfolio returns. Collectively, the evidence indicates that the choice of decision frames is likely to be an important determinant of investment decisions.

Narrow framing, trade clustering, disposition effect, portfolio diversification, prospect theory

Abstract:
This study examines whether the framing mode (narrow versus broad) influences the stock investment decisions of individual investors. Motivated by the experimental evidence, which suggests that separate decisions are more likely to be narrowly framed than simultaneous decisions, we propose trade clustering as a proxy for narrow framing. Using this framing proxy, we show that investors who execute more clustered trades exhibit weaker disposition effects and hold better diversified portfolios. We also find that the degree of trade clustering is related to investors' stock preferences and portfolio returns. Collectively, the evidence indicates that the choice of decision frames is likely to be an important determinant of investment decisions.

Narrow framing, trade clustering, disposition effect, portfolio diversification, prospect theory

Abstract:
Using a database of more than 1.85 million transactions made by retail investors over a six-year period (1991-96), we show that these trades are systematically correlated − i.e., individuals buy (or sell) stocks in concert. Moreover, as predicted by noise trader models, we find that systematic retail trading explains return comovements for stocks with high retail concentration (i.e., small-cap, value, lower institutional ownership, and lower-priced stocks), especially if these stocks are also costly to arbitrage. Macro-economic news and analyst earnings forecast revisions do not explain these results. Collectively, our findings support a role for investor sentiment in returns formation.

Correlated trading, Retail sentiment, Habitat-based comovement, Arbitrage costs

Abstract:
Using thousands of brokerage accounts of U.S. individual investors, we analyze the motivations and consequences of foreign equity investment. We find that diversification is not the only reason that investors trade foreign securities. While wealthier, more experienced investors enjoy an informational advantage and, thus, are more likely to invest overseas and experience good portfolio performance, other investors appear to venture abroad for the wrong reasons. In particular, behaviorally-biased investors often under-use or misuse foreign equity securities and experience poor portfolio performance. Some investors appear to use foreign securities for speculation or to improve upon poor domestic portfolio performance.

Individual investors, diversification, home bias, local bias, over-confidence

Abstract:
Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962 to 1997 period. We show that this trend completely reverses itself by 2007, falling below pre-1990s levels. Furthermore, we show that the reversal is concentrated among firms with low stock prices and high retail ownership. This evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but, rather, an episodic phenomenon, at least partially associated with retail investors. Results from cross-sectional regressions, conditional trend estimation, stock-split events, and attention-grabbing events are consistent with a retail trading effect.

Idiosyncratic volatility, stock market bubbles, retail investors, speculation, stock splits

Abstract:
This paper uses investor-level data to provide direct evidence for an intuitive but surprisingly untested proposition that investors make larger investment mistakes when valuation uncertainty is higher and stocks are more difficult to value. Using multiple measures of valuation uncertainty and multiple behavioral bias proxies, I show that individual investors exhibit stronger behavioral biases when stocks are harder-to-value and when market-level uncertainty is higher. I also find that informed trading intensity is higher among stocks where individual investors exhibit stronger behavioral biases. Collectively, these results indicate that uncertainty at both stock and market levels amplifies individual investors' behavioral biases and that relatively better informed investors attempt to exploit those biases.

Abstract:
This paper uses investor-level data to provide direct evidence for an intuitive but surprisingly untested proposition that investors make larger investment mistakes when valuation uncertainty is higher and stocks are more difficult to value. Using multiple measures of valuation uncertainty and multiple behavioral bias proxies, I show that individual investors exhibit stronger behavioral biases when stocks are harder-to-value and when market-level uncertainty is higher. I also find that informed trading intensity is higher among stocks where individual investors exhibit stronger behavioral biases. Collectively, these results indicate that uncertainty at both stock and market levels amplifies individual investors' behavioral biases and that relatively better informed investors attempt to exploit those biases.

Abstract:
This study shows that individual investors systematically shift their preferences across extreme style portfolios (small versus large, value versus growth). These preference shifts are influenced by past style returns and earnings differentials, and advice from investment newsletters, but are unaffected by innovations in macroeconomic variables or shifts in expectations about future cash flows. Furthermore, investors' dynamic style preferences influence returns along multiple dimensions: (i) the contemporaneous relation between style returns and style-level preference shifts is strong, (ii) there is weak evidence of style return predictability, and (iii) the correlations among stocks within a style increase when investors move into or out of the style with greater intensity. Overall, the results indicate that stock categorization influences investors' portfolio decisions and stock returns.

Abstract:
This study examines whether changing style preferences of individual investors influence returns. Using data from a large U.S. discount brokerage house, first, I show that investors exhibit time-varying style preferences. These preference shifts are influenced by past style returns and earnings differentials, and expert advice from investment newsletters, but are unaffected by innovations in macro-economic variables or shifts in investors' expectations about stocks' future cash-flows. Next, I show that investors' changing style preferences influence style returns. The contemporaneous relation between style returns and style level preference shifts is strong and there is also weak evidence of style return predictability. Moreover, within-style mean return correlation is positively related to the magnitude of investors' preference shifts.

Abstract:
The recent behavioral literature has shown that individual investors hold concentrated portfolios, trade excessively, and exhibit a preference for local stocks. These results are puzzling because in all three instances portfolio distortions could reflect either an informational advantage or psychological biases. In this study, we propose a demographics-based proxy for smartness and show that the portfolio distortions of "smart" investors reflect an informational advantage that generate high risk-adjusted returns. In contrast, the distortions of "dumb" investors arise from psychological biases because they experience low risk-adjusted performance. When we do not condition on the level of portfolio distortions, the average net performance of smart investors does not beat passive benchmarks, but smart investors outperform dumb investors by about 3 percent annually on a risk-adjusted basis. Further, when portfolio distortions are large, smart investors outperform the passive benchmarks by about 2 percent and the smart-dumb performance differential is over 5 percent. We also show that a portfolio of stocks with smart investor clientele outperforms the dumb clientele portfolio by about 3.50 percent annually. Taken together, these results indicate that both behavioral and information-based explanations for observed portfolio distortions are appropriate, but they apply to groups of dumb and smart investors, respectively.

Individual investors, cognitive abilities, behavioral biases, diversification, active trading, local bias

Abstract:
This study investigates whether local stock returns vary with local business cycles in a predictable manner. We conjecture that, in the presence of local bias and incomplete risk sharing, local macroeconomic variables that characterize local business cycles would predict the returns of local stocks. In particular, during local economic recessions, the average returns of local stocks would increase as local risk aversion increases and the ability of local investors to smooth consumption declines. Consistent with this conjecture, we find that U.S. state portfolios earn higher (lower) returns when state-level unemployment rates are higher (lower) and state investors face stronger (weaker) borrowing constraints. During the 1980-2004 period, trading strategies that exploit this state-level predictability earn annualized risk-adjusted return of over 7 percent. The evidence of predictability is stronger among less visible firms and in regions in which investors exhibit stronger local bias and hold more concentrated portfolios. Overall, our results indicate that the stock return generating process contains a predictable local component.

Local bias, CCAPM, return predictability, geographical segmentation, risk sharing

Abstract:
We examine the effect of behavioral biases on the mutual fund choices of individual investors. Using the common stock investments of a large sample of discount brokerage investors in the U.S., we define multiple behavioral bias proxies and measure the extent of overconfidence, disposition effect, narrow framing, preference for local funds, and preference for speculative securities for each individual. We find that behaviorally-biased investors are more likely to avoid mutual funds, but when they invest in mutual funds, they prefer active funds to index funds. They select high expense funds, trade funds excessively, and time their buys and sells poorly, thus decreasing performance. They also exhibit stronger trend chasing behavior, suggesting that trend chasing by mutual fund investors may not be rational. Collectively, our results indicate that behavioral biases influence decisions and performance even in a delegated investment setting such as mutual funds.

Individual investors, behavioral biases, disposition effect, narrow framing, mutual fund investments

Abstract:
We use religion as a proxy for gambling and investigate whether geographical variation in religion-induced gambling norms affects aggregate market outcomes. Motivated by the evidence from gambling studies, we conjecture that gambling propensity would be higher in regions with higher concentration of Catholics relative to Protestants. We consider four economic settings in which the existing literature has suggested a role for gambling and speculation. First, we show that gambling preferences influence the portfolio choices of institutional investors. Investors located in regions with a higher Catholic-Protestant ratio (CPRATIO) exhibit a greater propensity to hold stocks with lottery features. Next, in a corporate setting, we show that broad-based employee stock option plans, which are likely to appeal more to employees with stronger gambling preferences, are more popular in high CPRATIO regions. Examining the aggregate impact of gambling on stock returns, we find that the initial day return following an initial public offering is higher for firms located in high CPRATIO regions where local speculative demand is expected to be stronger. In a broader market setting, we find that the magnitude of the negative lottery-stock premium is larger in high CPRATIO regions. Collectively, our results indicate that religious beliefs, through their influence on gambling attitudes, impact investors' portfolio choices, corporate decisions, and stock returns.

Abstract:
This paper studies the clientele characteristics and pricing of stocks that are heavily traded by retail investors. We find that stocks with high "retail trading proportion" (RTP) have a large concentration of speculative investors (Barberis and Huang (2008, hereafter BH)) and risk-seeking realization utility investors (Barberis and Xiong (2008, hereafter BX-RU)). Consistent with BX-RU, retail investors prefer to hold and actively trade high volatility stocks, while institutions under-weight them. Further, investors' propensity to realize gains is stronger among high RTP and high volatility stocks. In addition, consistent with BH, we find that high RTP stocks have strong speculative features and are dominated by retail investors who are known to exhibit a greater propensity to speculate and gamble in the stock market. Asset prices within this retail habitat are consistent with the predictions of the BH and BX-RU models. First, high RTP stocks earn low average returns. Second, the relation between volatility and average returns is more negative among high RTP stocks. Third, these results are stronger among more speculative stocks. We also find that the negative lottery stock premium only exists among high RTP stocks. Collectively, our results highlight the usefulness of a habitat-based approach for studying asset prices and provide support for both BH and BX-RU models within the subset of stocks whose trading is dominated by retail investors.

Abstract:
In this paper we examine the structure of the core of a trading economy with three competitive equilibria as the number of traders (N) is varied. We also examine the sensitivity of the multiplicity of equilibria and of the core to variations in individual initial endowments. Computational results show that the core first splits into two pieces at N = 5 and then splits a second time into three pieces at N = 12. Both of these splits occur not at a point but as a contiguous gap. As N is increased further, the core shrinks by N = 600 with essentially only the 3 competitive equilibria remaining. We find that the speed of convergence of the core toward the three competitive equilibria is not uniform. Initially, for small N, it is not of the order 1/N but when N is large, the convergence rate is approximately of the order 1/N. Small variations in the initial individual endowments along the price rays to the competitive equilibria make the respective competitive equilibrium (CE) unique and once a CE becomes unique, it remains so for all allocations on the price ray. Sensitivity analysis of the core reveals that in the large part of the endowment space where the competitive equilibrium is unique, the core either converges to the single CE or it splits into two segments, one of which converges to the CE and the other disappears.

Core, Multiple competitive equilibria, Speed of convergence, Sensitivity Analysis.

Abstract:
This study investigates whether the adverse effects of investors' behavioral biases extend beyond the domain of financial markets to the broad macro-economy. We focus on the risk sharing (or income smoothing) role of financial markets and demonstrate that risk sharing levels are higher in U.S. states in which investors have higher cognitive abilities and exhibit weaker behavioral biases. Further, states with better risk sharing opportunities achieve higher levels of risk sharing if investors in those states exhibit greater financial sophistication. Among the various determinants of risk sharing, behavioral factors have the strongest effects. The average level of risk sharing in states with unsophisticated investors (= 0.121) is less than half of the average risk sharing level in states with financially sophisticated investors (= 0.308). Collectively, our evidence indicates that the high risk sharing potential of financial markets is not fully realized because the aggregate behavioral biases of individual investors impede state-level risk sharing.

Risk sharing, income risk, financial markets, cognitive abilities, behavioral biases, investor sophistication

Abstract:
This study shows that U.S. individual investors hold under-diversified portfolios, where the level of under-diversification is greater among younger, low-income, less-educated, and less-sophisticated investors. The level of under-diversification is also correlated with investment choices that are consistent with over-confidence, trend-following behavior, and local bias. Furthermore, investors who over-weight stocks with higher volatility and higher skewness are less diversified. In contrast, there is little evidence that portfolio size or transaction costs constrains diversification. Under-diversification is costly to most investors, but a small subset of investors under-diversify because of superior information.

G11, G12

Abstract:
In this paper we examine the portfolios of more than 40,000 equity investment accounts from a large discount brokerage during a six year period (1991-96) in recent U.S. capital market history. Using the historical performance for the equities in these accounts, we find that a vast majority of investors in our sample are under-diversified. Even accounting for the likelihood we have selected on speculators, the magnitude of the diosyncratic risk taken by investors in our sample is surprising. Investors are aware of the benefits of diversification but they appear to adopt a 'naive' diversification strategy where they form portfolios without giving proper consideration to the correlations among the stocks. Over time, the degree of diversification among investor portfolios has improved but these improvements result primarily from changes in the correlation structure of the US equity market. Cross-sectional variations in diversification across demographic groups suggest that investors in low income and non-professional categories hold the least diversified portfolios. In addition, we find that young, active investors are over-focused and hold under-diversified portfolios. Overall, our results indicate that investors realize the benefits of diversification but they face a daunting task of 'implementing' and maintaining a well-diversified portfolio.

Abstract:
Using a large database of portfolio holdings and trades of retail and institutional investors, we identify several investor habitats and show that investors' correlated trading activities generate return comovements among stocks within those habitats. Motivated by the recent literature on comovements, we focus on geography- and price-based return comovements but also consider other types of comovements. We find that both retail and institutional investors specialize and exhibit a high propensity to trade stocks that have similar characteristics. Further, investors' trading activities within their respective habitats are correlated, where retail trades exhibit stronger correlations. Examining the trading-comovement relation, we find that correlated retail trading generates comovements within geography- and price-based stock categories while informed trading by institutions weakens those comovement patterns. The comovement patterns are stronger among stocks that have lottery features, are located in regions where gambling propensity is high, and are held by retail investors who exhibit a greater propensity to gamble. Across time, trading correlations and comovements are amplified during periods of greater market-level uncertainty and stronger consumer sentiment. Overall, our results provide direct empirical support for the habitat-based return comovements model proposed in Barberis, Shleifer, and Wurgler (2005).

Abstract:
In this paper we study the relationship between the stability of a competitive equilibrium (CE) and the price adjustment mechanism used to attain that equilibrium point. Using two specific examples, a three-commodity exchange economy with a unique competitive equilibrium (Scarf's global instability example) and a two-commodity, two-trader type exchange economy with multiple competitive equilibria, we show that the stability of a CE depends critically upon the dynamics of the price adjustment mechanism. A particular CE may be unstable under one price adjustment mechanism but stable under another. The joint dynamics of the chosen price adjustment mechanism and the given economy determines the overall stability of its competitive equilibrium. Our results suggest that context-rich studies of economic systems which focus on a specific price adjustment mechanism may provide insights into the dynamics and stability of economic systems that are often not revealed through a context-independent analysis.

Scarf's counter-example, Price adjustment mechanism, Feedback Controller, Multiple competitive equilibria, Stability

Abstract:
This paper shows that people's optimism towards financial markets and the overall economy is dynamically determined by their political affiliation and the current political climate. Republicans (Democrats) are more optimistic and they perceive the markets to be less risky and more under-valued when the Republican (Democratic) party is in power. These optimism shifts are more pronounced among less sophisticated individuals. Political regimes changes are also associated with shifts in overconfidence: Investors are more overconfident when the opposite party is in power. Further, these shifts in optimism, overconfidence, and perceptions of risk and reward influence people's investment decisions. Specifically, investors with a dim view of the domestic economy exhibit strong propensity to invest in foreign stocks. In the domestic setting, they gravitate toward less risky and familiar local stocks. Risk-shifting behavior induced by the political climate affects raw portfolio performance, but risk-adjusted performance remains unchanged. Taken together, these results indicate that the existing political environment is an important determinant of people's investment decisions.

Abstract:
This study examines whether the height of an individual affects financial and decisions. Using a representative sample of European households, we find that taller individuals are more likely to participate in financial markets, and when they participate, they hold riskier financial portfolios. Taller individuals also exhibit risky behavior in other settings. They are more likely to take business risk (i.e., own a business) and adopt a riskier lifestyle (e.g., smoke). Examining the channels through which height influences these decisions, we find that height is a concise measure of personality: taller individuals are more optimistic, have higher cognitive abilities, lower health risks, and higher levels of social interactions. Most of these effects reverse for very tall (top 5%) individuals who the least likely to participate in the market. In addition, height is a significant predictor of financial decisions even after accounting for the known correlates of stock market participation. Thus, it captures unobserved personality attributes like sociability in teenage years that also influence risky decisions. Overall, our evidence indicates that personality, accurately measured by height, is an important driver of people's financial market participation and asset allocation decisions.

Abstract:
This paper investigates whether proximity to institutional shareholders influences corporate policies. We find that firms with high local institutional ownership are more profitable, less risky, and have a better governance structure. Specifically, these firms are less likely to engage in undesirable corporate activities such as aggressive earnings management or option back-dating and are therefore less likely to be a target of class action lawsuits. Further, firms with more local institutional shareholders are less likely to be a takeover target. We also find that both total and option-based executive compensation levels are lower for firms with more local institutional shareholders. In contrast, high local retail ownership does not have significant influence on corporate policies. Taken together, these results are consistent with our conjecture that local institutions serve as more effective monitors of corporate behavior because monitoring costs vary inversely with distance.

Abstract:
This paper investigates whether there are systematic differences between the forecasting style and abilities of female and male analysts, and whether market participants recognize these differences. My key conjecture is that only female analysts with superior forecasting abilities enter the profession due to a perception of discrimination in the analyst labor market. Consistent with this conjecture, I find that female analysts issue bolder and more accurate forecasts and their accuracy is higher in market segments in which their concentration is lower. Further, the stock market participants are aware of the male-female skill differences. They respond more strongly to the forecast revisions by female analysts even though those analysts get less media coverage. The short-term market reaction is incomplete, however, because it is followed by a strong post-revision drift. The perception of abilities is similar in the analyst labor market where female analysts are more likely to move up to high-status brokerage firms, while their downward career mobility is lower. Collectively, these results indicate that female analysts have better-than-average skill due to self-selection and market participants are at least partially able to recognize their superior abilities.

Female analysts, earnings forecasts, market reaction, career mobility, gender bias, media coverage, self-selection.

Abstract:
Using thousands of brokerage accounts of U.S. individual investors, we analyze the motivations and consequences of foreign equity investment. We find that diversification is not the only reason that investors trade foreign securities. While wealthier, more experienced investors enjoy an informational advantage and, thus, are more likely to invest overseas and experience good portfolio performance, other investors appear to venture abroad for the wrong reasons. In particular, behaviorally-biased investors often under-use or misuse foreign equity securities and experience poor portfolio performance. Some investors appear to use foreign securities for speculation or to improve upon poor domestic portfolio performance.

Individual investors, diversification, home bias, local bias, over-confidence