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Identity, instability, and investors: An empirical investigation of the home bias

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  • Huning, Thilo R.
  • Wahl, Fabian

Abstract

In this paper, we present novel data from the German-speaking area on 13,422 venture capital investments between 1999 and 2019, and document a novel and yet unexplained contributor to investors' home bias. We propose a new measure of regional identity based on a recent vehicle license plate liberalization in Germany, and leverage on a unique dataset of historical borders to show how regional identity is formed. We use an instrumental strategy to establish a causal link between historical political instability, regional identity, and the home bias. Our results indicate that a common regional identity is highly relevant for investment decisions.

Suggested Citation

  • Huning, Thilo R. & Wahl, Fabian, 2022. "Identity, instability, and investors: An empirical investigation of the home bias," Working Papers 35, German Research Foundation's Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour", Humboldt University Berlin.
    • Handle: RePEc:zbw:pp1859:35
    DOI: 10.18452/25369
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    1. Nathan Nunn & Diego Puga, 2012. "Ruggedness: The Blessing of Bad Geography in Africa," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 20-36, February.
    2. repec:ecj:econjl:v:122:y:2012:i::p:502-531 is not listed on IDEAS
    3. Davide Cantoni, 2012. "Adopting a New Religion: the Case of Protestantism in 16th Century Germany," Economic Journal, Royal Economic Society, vol. 122(560), pages 502-531, May.
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    More about this item

    Keywords

    home bias; venture capital; start-ups; investor behavior; common regional identity; historical political instability;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • Z19 - Other Special Topics - - Cultural Economics - - - Other

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