Introduction

Abstract

The rationale for the widely documented proximity bias in investors’ portfolio choice is yet today a shrouded mystery far from being satisfactory explained. In the contemporary portfolio choice literature, the phenomenon is commonly recognized as the home bias puzzle and the local bias puzzle, respectively. Hence, in this book, it will be referred to as the proximity bias puzzle. The book’s main purpose is to lay a foundation for understanding the proximity bias phenomenon more in depth by first recapitulating the fundamentals of modern portfolio theory. Thereafter, we describe and demonstrate different approaches on how to measure investors’ proximity bias, identify and examine potential motives and reasons for their bias, and, finally, distinguish, elaborate upon, and explain possible policy implications of the proximity bias in investors’ portfolio choice. The outcome of the book should inform students in business, economics, and finance, researchers and decision makers in business firms, other organizations and households on how investors allocate their equity portfolios with the emphasis particularly on investment, governance, and regulatory policy implications.