Publicação

Home country bias : does domestic experience help investors enter foreign markets?

Detalhes bibliográficos
Resumo:	This paper investigates the dynamics of individuals’ investments leading up to their decision to make the ﬁrst investment abroad. We show that investors ﬁrst invest in domestic securities and only some time later they invest abroad in foreign securities. We also show that investors who trade more often in the domestic market start to invest abroad earlier. Our ﬁndings suggest that the experience investors acquire while they trade in the domestic market is a key reason why active investors enter the foreign market earlier. A reason is that highly educated investors as well as investors with more ﬁnancial knowledge, arguably those for whom learning by trading is the least important, do not need to trade as much in the domestic market before they start investing in foreign securities. Another reason is that investors who start investing in foreign securities are able to improve on their performance afterwards. This improvement in performance constitutes further evidence that the home country bias is costly.
Autores principais:	Abreu, Margarida
Outros Autores:	Mendes, Victor; Santos, João A.C.
Assunto:	Learning Home country bias Duration analysis
Ano:	2011
País:	Portugal
Tipo de documento:	artigo
Tipo de acesso:	acesso aberto
Instituição associada:	Universidade de Lisboa
Idioma:	inglês
Origem:	Repositório da Universidade de Lisboa

Descrição
Resumo:	This paper investigates the dynamics of individuals’ investments leading up to their decision to make the ﬁrst investment abroad. We show that investors ﬁrst invest in domestic securities and only some time later they invest abroad in foreign securities. We also show that investors who trade more often in the domestic market start to invest abroad earlier. Our ﬁndings suggest that the experience investors acquire while they trade in the domestic market is a key reason why active investors enter the foreign market earlier. A reason is that highly educated investors as well as investors with more ﬁnancial knowledge, arguably those for whom learning by trading is the least important, do not need to trade as much in the domestic market before they start investing in foreign securities. Another reason is that investors who start investing in foreign securities are able to improve on their performance afterwards. This improvement in performance constitutes further evidence that the home country bias is costly.