Investor Behavior Identity And Home Bias

Investor’s behavior directly affects individual’s investment decisions which cangenerate a number of interesting investment phenomena in financial market. Thephenomenon of home bias is the one of them. In today’s economic research, surprisingly,there are hardly analyzed based on the human’s behavior and cognition. Instead, there area lot of research studied home biases based on cost-risk analysis or so-called culturalanalysis. It is not difficult to find that those perspectives are fragmented, stylized andfeeble. It is also important that thinking from the perspective of an individual’s behaviorand cognition is the most essential point to explain the real economic phenomenon ineconomic research. Scrutiny of the debate of economic schools from the history, theparadigm of mainstreams economics doesn’t consider the authenticity of human beingcompletely. That is to say, the diversity and complexity of social economy are ignored.The author worries about the long-term existence of this situation. Under considerationfor those situations, this paper just tries to attempt to propose some basic concepts basedon the phenomenon of home bias to initiate some reflection in order to in-depthexploration in future.One aim of this paper is to bridge the gap in literature by means of proposing anoriginal concept, Investor Behavior Identity (IBI, i.e. Investment Behavior Identity),from the perspective of cognitive science and complexity science etc., to explain thephenomenon of home bias. For the definition’s interpretation, systematicness andintegrity, this paper proposes the intension and extension of the definition of IBI.Afterwards, the paper prepares to build a model under the definition of IBI andmean-variance framework, which aims to prove that the phenomenon of home bias is notonly related to perception of investor’s price-cost cognition but also the perception ofrisk based on the investor’s behavioral cognition. Therefore, the model discloses amicro-meso foundation for the phenomenon of investment home bias in literature ofinternational finance or international trade.For the purpose of investigating the reliability of theoretical model, there will be anempirical analysis based on the China-mainland and Hong Kong macro financial marketby using Shanghai A-share index and Hang Seng H-share index. The statisticaldescription and robust statistical tests will be given in empirical analysis. The empiricalevidence shows that investor is more likely to invest the A-share market and infuse more IBI. The extended result shows that the difference in price between A and Hshare is because of price-cost compensation and risk compensation. This paper stillanalyzes the possible reasons about existence of home bias from the perspectiveof trading mechanism and financial environment between China-mainland and HongKong.