Keeping Up with the Joneses and the Home Bias

10 Pages Posted: 20 Jun 2004

See all articles by Beni Lauterbach

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Haim Reisman

Technion-Israel Institute of Technology - William Davidson Faculty of Industrial Engineering & Management

Abstract

We argue that when individuals care about their consumption relative to that of their neighbours, a home bias emerges, that is investors overweight domestic stocks in their portfolios. Domestic stocks are preferred because they also serve the objective of mimicking the economic fortunes and welfare of the investor's neighbours, countrymen, and social reference group. We also demonstrate that globalization mitigates the home bias, and derive a modified international CAPM.

Suggested Citation

Lauterbach, Beni and Reisman, Haim, Keeping Up with the Joneses and the Home Bias. European Financial Management, Vol. 10, No. 2, pp. 225-234, June 2004. Available at SSRN: https://ssrn.com/abstract=554952

Beni Lauterbach (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Haim Reisman

Technion-Israel Institute of Technology - William Davidson Faculty of Industrial Engineering & Management ( email )

Haifa 32000
Israel
+972-4-829-4442 (Phone)
+972-4-823-5194 (Fax)

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