Abstract

http://ssrn.com/abstract=2398737
 


 



Relative Optimism and the Home Bias Puzzle


Bruno Solnik


Hong Kong University of Science & Technology (HKUST) - Department of Finance

Luo Zuo


Cornell University - Samuel Curtis Johnson Graduate School of Management

April 26, 2016

Review of Finance, Forthcoming

Abstract:     
We study whether relative optimism leads to home bias in portfolio holdings by looking at two novel databases: a survey that includes expectations of identified professional asset management companies for equity, bonds and currencies, and the IMF portfolio holdings data for equity and bonds. We document that relative optimism for equity is persistent over the period 1997 to 2012, but relative optimism for bonds and currencies exhibits more time-series variation. Moreover, we show that relative optimism is an economically significant variable that helps explain home bias in portfolio holdings, not only for equity, but also for bonds.

Number of Pages in PDF File: 45

Keywords: Expectations, Relative Optimism, Familiarity, Home Bias

JEL Classification: G02, G15


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Date posted: February 21, 2014 ; Last revised: April 27, 2016

Suggested Citation

Solnik, Bruno and Zuo, Luo, Relative Optimism and the Home Bias Puzzle (April 26, 2016). Review of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2398737 or http://dx.doi.org/10.2139/ssrn.2398737

Contact Information

Bruno Solnik
Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )
Clear Water Bay, Kowloon
Hong Kong
Luo Zuo (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
362 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)
HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=lz352

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