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

32 Pages Posted: 19 Mar 2008  

Ralph Bluethgen

EBS Universität für Wirtschaft und Recht - EBS Business School

Steffen Meyer

Leibniz Universität Hannover

Christian Jansen

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

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Date Written: 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.

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

JEL Classification: G11, D10

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: https://ssrn.com/abstract=1102131 or http://dx.doi.org/10.2139/ssrn.1102131

Ralph Bluethgen

EBS Universität für Wirtschaft und Recht - EBS Business School ( email )

Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany

Steffen Meyer (Contact Author)

Leibniz Universität Hannover ( email )

Königsworther Platz 1
Hannover, DE 30167
Germany

Christian Jansen

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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