The phenomenon that individual investors prefer local stocks and overweight them is called home bias; and it is still a puzzle on the capital market. The individual investors of 3,710 from Shanghai, Tianjin, and Dalian are selected as samples, and based on information advantage, the home bias is tried to explain. The empirical results show that there is home bias inside Chinese stock market and there exists an inverted U-ship relationship between home bias and information advantage. The fact means that there is a critical value involving information advantage, when the information advantage is less than the critical value, the home bias is increasing with information advantage is enhancing; however when information advantage is larger than the critical value,home bias is decreasing with information advantage is enhancing. It is believed that with the strength of information advantage is enhancing, the targets of information are from more to less, the public companies that information involves is from far to near, and it will boost up investors' diversity and is the main reason for the inverted U-ship relationship.
Key words
home bias /
information asymmetry /
investment preference
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