The Missing Link Between Home Bias and Investor Sentiment : Evidence from a Quasi-experimental Financial Market

It is known that investors over-invest in "home" assets. Yet, there is much debate on whether superior information or sentiment drives this behavior. Using the sports-betting market as a real-market laboratory, we find individuals exhibit a bias toward home-team wagers, which does not yield superior performance but distorts individuals' portfolios, generating welfare costs of similar magnitude as in the stock market. Our findings confirm a key yet hitherto-untested assumption underlying the behavioral explanation of home bias in finance, thereby increasing this explanation's likelihood: that a behavioral home bias is strong enough to persist in market settings and survive costly implications