Knowledge Tree
home bias
Also known as: familiarity bias
Facts (14)
Sources
Biases in Behavioral Finance - World Scholars Review worldscholarsreview.org Sep 15, 2024 7 facts
claimHome or familiarity bias is an emotional bias that can lead investors to favor investment strategies that are potentially too similar or heavily concentrated.
referenceSilva, N. D., Malaquias, R. F., and Peixoto, F. M. published 'Home Bias and Performance: A Study with Brazilian Mutual Funds' in 2020.
claimThe phenomenon of home bias, driven by emotional inclinations, can lead to overconcentration in local investment strategies.
claimResearchers in a 2020 study found that home bias is costly and may stem from behavioral biases.
claimAndrikogiannopoulou and Papakonstantinou's study indicates that psychological motives sustaining home bias endure in market settings, which reinforces the behavioral explanation for home bias in financial markets.
perspectiveCritics of the home bias concept argue that investing locally allows investors to better understand market dynamics and the riskiness of investments.
claimResearchers in a 2020 study discovered that mutual funds with qualified investors and higher minimum investment requirements exhibit lower home bias.
Influence of behavioral biases on investment decisions. The ... revistas.usc.gal 2 facts
referenceLütje, T. and Menkhoff, L. (2007) published 'What drives home bias? Evidence from fund managers’ views' in the International Journal of Finance and Economics, 12(1), 21-35.
referenceCoval and Moskowitz (1999) identified a 'home bias' phenomenon where investors show a preference for local equity in their domestic portfolios.
The Impact of Cognitive Biases on Professionals' Decision-Making frontiersin.org 2 facts
referenceResearch in behavioral finance has identified several cognitive biases affecting financial decision-making, including overconfidence (Barber and Odean 2000, 2001; Chuang and Lee 2006; Glaser and Weber 2007; Odean 1999), loss aversion (Benartzi and Thaler 1995), the disposition effect (Boolell-Gunesh et al. 2009; Odean 1998; Shefrin and Statman 1985), home bias (Coval and Moskowitz 1999), regression to the mean (De Bondt and Thaler 1985), and herding behavior (Grinblatt et al. 1995).
claimHome bias is a cognitive bias where investors allocate the majority of their portfolio to domestic equities rather than diversifying into foreign equities, as described by Coval and Moskowitz (1999).
Understanding Behavioral Aspects of Financial Planning and Investing financialplanningassociation.org Mar 1, 2015 2 facts
procedureFinancial planners should communicate the necessity of long-term diversification strategies to clients to help them achieve adequate risk reduction and expected returns, thereby overcoming sub-optimal portfolio performance caused by local and home bias.
claimInvestors exhibit local bias by investing in local securities with which they are familiar, and home bias by maintaining portfolios over-weighted in domestic assets.
5 Biases Affecting Your Investment Decisions | Global Credit Union globalcu.org 1 fact
claimFamiliarity bias, or home bias, occurs when investors stick only to investments they understand, which can lead to portfolios that are too concentrated in one security or unbalanced due to an unwillingness to invest in unfamiliar sectors.