Equity Home Bias Among Czech Investors: Experimental Approach
|| PhDr. Karel Báťa , |
||IES Working Papers
|ISSN / ISBN:
||IES Working Papers 17/2011
||Investment experiment, equity home bias, behavioral finance, optimal investment portfolio
||Báťa, K. (2011). “Equity Home Bias Among Czech Investors: Experimental Approach” IES Working Paper 16/2011. IES FSV. Charles University.
||402/09/0965: New Approaches for monitoring and prediction of capital markets
402/09/H045 - Nelineární dynamika v peněžní ekonomii a financích. Teorie a empirické modely
||Equity home bias is a situation on equity market where domestic investors prefer invest too much into domestic equities despite the possible gains from diversification into foreign equities. Equity home bias can arise as a result of institutional or behavioral factors. In this paper I will compare the evidence with the prediction of the model of optimal portfolio with three different utility functions (Markowitz, Exponential and CRRA) the results of the investment experiment and the evidence from OECD (2009). The results have shown that in total the Czech investors are home biased (they hold 85 % of domestic equities in their equity portfolios). However, in experimental lab conditions were the students rather foreign biased. They have chosen only 14 % of Czech equities as opposed to the model recommendation of 22-54%. The possible reasons for foreign biasness in experimental conditions can be the absence of transaction and informational cost and explicit FX risk. Furthermore, I have discovered that the successful experimental investors have higher investment knowledge and that they trust in intuition.