Home Bias: Taking Comfort in What You Know?
Research suggests that informational differences, including familiarity with domestic securities, underlie home equity bias. We suggest that home bias can arise more subtly. The bias may simply occur because individuals are more comfortable with domestic companies, irrespective of information or knowledge differences. Using an experimental method, we find that individuals prefer domestic equity opportunities--as a default strategy. Individuals do not invest more because they are overly optimistic about the performance of domestic securities. When objective, historical information is made available on the set of investment opportunities, expectations adjust accordingly and individuals more readily invest in international securities.