Abstract

http://ssrn.com/abstract=1102131
 


 



The Cost of Home Bias - Empirical Evidence and Implications for Stock Market Participation


Ralph Bluethgen


EBS Universität für Wirtschaft und Recht - EBS Business School

Steffen Meyer


Goethe University Frankfurt - Department of Finance

Christian Jansen


EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance, Accounting and Real Estate

Andreas Hackethal


Goethe University Frankfurt - Department of Finance

March 4, 2008


Abstract:     
Empirical studies on household portfolios uniformly document a strong home bias in private investors' portfolios. This paper uses both parametric and historical simulation techniques to quantify the cost induced by home bias. Our results reveal major country-specific differences in the benefits derived from international diversification. While we find a detrimental effect of home bias on portfolio performance for German investors, the effect for US investors is rather small in magnitude. We show that an increased awareness of the benefits of international diversification might positively affect the decision of individual investors to participate in the stock market.

Number of Pages in PDF File: 32

Keywords: household finance, home bias, investment mistakes, stock market participation

JEL Classification: G11, D10

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Date posted: March 19, 2008  

Suggested Citation

Bluethgen, Ralph and Meyer, Steffen and Jansen, Christian and Hackethal, Andreas, The Cost of Home Bias - Empirical Evidence and Implications for Stock Market Participation (March 4, 2008). Available at SSRN: http://ssrn.com/abstract=1102131 or http://dx.doi.org/10.2139/ssrn.1102131

Contact Information

Ralph Bluethgen
EBS Universität für Wirtschaft und Recht - EBS Business School ( email )
Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany
Steffen Meyer (Contact Author)
Goethe University Frankfurt - Department of Finance ( email )
Grüneburgplatz 1
Frankfurt am Main, DE 60323
Germany
Christian Jansen
EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance, Accounting and Real Estate ( email )
Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany
Andreas Hackethal
Goethe University Frankfurt - Department of Finance ( email )
House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany
+49 69 79833700 (Phone)
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