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http://ssrn.com/abstract=2398737
 
 

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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

July 24, 2014


Abstract:     
We study whether relative optimism leads to home bias in portfolio holdings for both equity and bonds 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 in all regions, 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: 55

Keywords: Expectations, Relative Optimism, Familiarity, Home Bias

JEL Classification: G02, G15

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Date posted: February 21, 2014 ; Last revised: July 25, 2014

Suggested Citation

Solnik, Bruno and Zuo, Luo, Relative Optimism and the Home Bias Puzzle (July 24, 2014). 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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