The Homeboy Bias: Evidence For and Determinants Of
54 Pages Posted: 15 Mar 2007
Date Written: March 14, 2007
We document a new investor bias we call the homeboy bias. Whereas the home bias is a preference for domestic or local assets, the homeboy bias is a preference for domestic fund managers. Using the choices of mutual funds for retirement accounts of the Swedish population, and after controlling for past returns, fees, and fund styles, we find that funds offered by Swedish institutions received over 21 times more money than similar funds offered by foreign institutions. In cross-fund regressions, we show that the homeboy bias is distinct from the home bias and is not driven by economic explanations based on information asymmetries or foreign exchange risk. In cross-individual regressions, we show that the homeboy bias is strongest among financially-unsophisticated investors and that explanations for the homeboy bias may be based on behavioral preferences related to familiarity and nationalism. Thus, the homeboy bias is empirically distinct from the home bias but may have the same behavioral roots.
Keywords: Mutual funds, home bias, homeboy bias, familiarity
JEL Classification: G11, G23, H55
Suggested Citation: Suggested Citation