HOME-MARKET BIAS! INVESTMENT BEHAVIOR FROM THE PERSEPCTIVE OF BEHAVIORAL ECONOMICS IN THE GERMAN STOCK MARKET

Abstract

Studies of the investor culture of both private and institutional German investors show a clear overweighting of German equity portfolios compared with international equity portfolios. This overweighting does not stop at institutional investors. It reduces returns and leads to increased risks in the long run. Explanations for this lie in heuristics and distorted perceptions, also called home bias and overconfidence effect, which lead to this investor behavior. This article describes these phenomena from the perspective of behavioral economics using heuristics.

Keywords

• german stock market
• private and institutional investment portfolios
• home- bias
• heuristics
• behavioral economics
• behavioral finance