What Drives Home Bias? Evidence from Fund Managers' Views

24 Pages Posted: 18 May 2004

See all articles by Torben Lütje

Torben Lütje

University of Hannover

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Date Written: January 6, 2004

Abstract

A survey of fund managers reveals home bias for these sophisticated investors in an unrestricted setting. Proximity, perceived informational advantage and higher expected returns are confirmed as accompanying factors. In addition, the home bias of equity managers is also related to institutional, informational and behavioral characteristics. The perceived informational advantage does not seem to be valid. Multivariate analyses indicate that home bias is mainly related to relative return optimism, non-fundamental information and peculiar behavior towards risk. We interpret these as characteristics of less than fully rational behavior. It is consistently found that this pattern does not apply to bond managers.

Keywords: Home bias, institutional investors, local information advantage, non-fundamental information, disposition effect

JEL Classification: F30, G15, G23

Suggested Citation

Lütje, Torben and Menkhoff, Lukas, What Drives Home Bias? Evidence from Fund Managers' Views (January 6, 2004). EFMA 2004 Basel Meetings Paper. Available at SSRN: https://ssrn.com/abstract=498162 or http://dx.doi.org/10.2139/ssrn.498162

Torben Lütje (Contact Author)

University of Hannover ( email )

Koenigsworther Platz 1
30167 Hannover
Germany
+49 511 762 4554 (Phone)
+49 511 762 4796 (Fax)

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

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