Review of Quantitative Finance and Accounting

, Volume 48, Issue 2, pp 527–556 | Cite as

Home bias in portfolio choices: social learning among partially informed agents

  • Wen-Lin Wu
  • Yin-Feng Gau
Original Research


Using an ‘incomplete information’ model, we explore the role of social learning in the global portfolio choices of stock market investors. When partially informed followers attempt to estimate true domestic (home) mean returns, they likely acquire private domestic signals from partially informed leaders. However, the calibration results indicate the existence of home bias when partially informed agents have poor quality information. Partially informed agents are prone to a learning bias; they overreact to new domestic information due to overconfidence in their domestic private signals, but they demonstrate a conservative response to new information in foreign markets. Links between the private signals of partially informed agents may lead to correlated foreign investment strategies among such agents through social learning. We suggest the acquisition of private signals, along with the dissemination of information, affect international portfolio decision rules and are determinants of the phenomenon of home bias.


Social learning International asset allocation Home bias Prior beliefs Observational learning 

JEL Classification




The authors would like to thank C. F. Lee (the editor), an anonymous referee, and the participants at The 2012 NTU International Conference on Finance, the 20th Conference on Securities and Financial Markets, the 2013 Annual Conference of Taiwan Finance Association, the 8th NCTU International Finance Conference, and the 22nd Annual Conference on Pacific Basin Finance, Economics, Accounting, and Management (PBFEAM) for many useful comments and suggestions on earlier drafts of this paper. Any remaining errors are our own. Wen-Lin Wu acknowledges the research grant of the Ministry of Science and Technology of Taiwan (NSC102-2410-H-035-011).


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of International TradeFeng Chia UniversityTaichung CityTaiwan, ROC
  2. 2.Department of FinanceNational Central UniversityTaoyuan CityTaiwan, ROC

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