טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentGeva Danit
SubjectThe Effect of Priming on Home Bias Puzzle
DepartmentDepartment of Industrial Engineering and Management
Supervisor Professor Doron Kliger


Abstract

An optimal investment portfolio should comprise a large number of assets, both domestic and foreign. The purpose of portfolio diversification is to reduce risk and hedge against the various shocks that may influence the markets. In spite of the advantage of investment diversification, many investors tend to invest mainly in domestic assets and neglect investment in foreign assets. The lack of investment in foreign assets in investment portfolios is referred to in the literature as "the home bias puzzle." This phenomenon has occupied many economists and is documented in the literature.


The aim of this study is to examine the puzzle through the use of priming. Priming constitutes a hidden memory created from exposure to stimuli; such exposure can be effected by means of semantic conceptual stimuli or, alternatively, theoretical stimuli.


The stimuli used in the study were reading an article on the impact of the Olympics on the Brazilian economy , exposure to colors, and reading an article on nationalism . The three stimuli were tested respectively using three experiments: the Olympic experiment, the color experiment, and the national experiment.


The results were examined in accordance with the hypotheses tested in the experiments. The preliminary results obtained in the color and Olympics experiments showed the percentage of investment allocated to the purchase of domestic assets. A large number of investors were exposed to a questionnaire with a red background and a questionnaire that contained a negative article about the Olympic Games in Brazil. In order to test the hypotheses, we created a new parameter for both the Olympic and the color experiments. The parameter is called average investment in domestic assets. This parameter was calculated according to the sums investors allocated for domestic assets in relevant questions in both questionnaires. We examined whether there was a difference in the amount that the investors preferred to invest in domestic asset. We considered the gender and the stimulus examined in each of the experiments. According to our expectations, the average investment in domestic assets was higher among investors who were exposed to a negative article than among those who were exposed to a positive article about the impact of the Olympic Games on the Brazilian economy . However, the color experiment did not produce significant results.


We continued to analyze the above results to examine whether there was a difference in the amount allocated to the purchase of local property by gender and the stimulus applied in each of the above experiments. In the Olympics experiment, the results clearly showed that the type of article that the subjects were asked to read had the same effect on men and women. In the color experiment, however, men exposed to a questionnaire with a green background allocated a greater amount to the purchase of local property than men who were exposed to a questionnaire with a red background (significance level 0.7). These results, however, are not significant.

In the national experiment, no significant results were obtained.