Bias in Foreign Equity Portfolios: Households Versus Professional Investors

Abstract

Non professional investors display a much higher degree of home bias than financial investors suggesting that they might be more severely affected by information asymmetry issues. In particular, non professional investors, having less easily access to information on foreign firm-specific characteristics than institutional investors, will rely more heavily on country-specific factors. We test this conjecture restricting the analysis to foreign equity portfolios of four European investing countries - France, Italy, Spain and Sweden. We find, indeed, that households' portfolios are more strongly influenced by proximity variables, transparency of the destination stock market and, even more interestingly, by common-listing in the Euronext platform.