Home Bias in Online Investments: An Empirical Study of an Online Crowdfunding Market

Forthcoming, Management Science

36 Pages Posted: 18 Feb 2013 Last revised: 27 Mar 2015

Mingfeng Lin

University of Arizona - Eller College of Management

Siva Viswanathan

University of Maryland - Robert H. Smith School of Business

Date Written: January 26, 2014

Abstract

An extensive literature in economics and finance has documented “home bias,” the tendency that transactions are more likely to occur between parties in the same geographical area, rather than outside. Using data from a large online crowdfunding marketplace and employing a quasi-experimental design, we find evidence that home bias still exists in this virtual marketplace for financial products. Furthermore, through a series of empirical tests, we show that rationality-based explanations cannot fully explain such behavior, and that behavioral reasons at least partially drive this remarkable phenomenon. As crowdfunding becomes an alternative and increasingly appealing channel for financing, a better understanding of home bias in this new context provides important managerial, practical, and policy implications.

Keywords: home bias; peer-to-peer lending; quasi-experiment; crowdfunding; behavioral explanations

Suggested Citation

Lin, Mingfeng and Viswanathan, Siva, Home Bias in Online Investments: An Empirical Study of an Online Crowdfunding Market (January 26, 2014). Forthcoming, Management Science. Available at SSRN: https://ssrn.com/abstract=2219546 or http://dx.doi.org/10.2139/ssrn.2219546

Mingfeng Lin (Contact Author)

University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States

Siva Viswanathan

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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