Familiarity Bias

Foad, Hisham

doi:10.1002/9781118258415.ch15

Cited by 16 publications

(13 citation statements)

References 58 publications

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“…Investors are exposed to asymmetric information when dealing with assets that are unfamiliar to them. These information asymmetries are relevant, especially when considering investments in foreign assets (Foad 2010). Studies find that investors prefer to invest in local assets with which they are more familiar, in spite of the benefits and gains from international diversification (Foad 2010:278).…”

Section: Familiarity Biasmentioning

confidence: 99%

“…Extensive research on the topic of familiarity bias in individual investment decision making has been conducted in various countries, which provide ample evidence that this particular bias is portrayed in the investment decisions made by individuals (Aspara & Tikkanen 2008;Baker & Nofsinger 2002;Foad 2010). Despite the majority of international research in the field of behavioural finance and in particular on familiarity bias, there seems to be a paucity of research in South Africa.…”

Section: Research Objectives and Hypothesesmentioning

confidence: 99%

“…Therefore, this article aims to contribute to the South African finance literature by investigating the presence of familiarity bias amongst individual investors. Based on the evidence from prior international studies (Baker & Nofsinger 2002;Foad 2010;Grullon et al 2004;Huberman 2001), it is expected that the phenomenon of familiarity will also be evident in the investment decisions of South African investors. If this is the case, it is important to investigate this topic further to determine the potential impact it can have on the investment decisions made by individuals as well as the South African stock market.…”

Section: Introductionmentioning

confidence: 99%

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The familiar versus the unfamiliar: Familiarity bias amongst individual investors

Erasmus

Gerber

2017

Acta Commercii

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Purpose: The purpose of this study was to investigate the existence of familiarity bias amongst individual investors in the South African stock market. Problem investigated: According to Warren Buffet, one needs to maintain emotional detachment if one wants to be a successful investor. However, recent research indicates that the perceptions of companies’ products and brands may influence individuals’ investment decisions in the stock market. This phenomenon implies that the investment decisions of individual investors are not purely based on firm fundamentals as suggested by traditional finance theories, but might be driven partly by the positive or negative attitude they have towards certain companies’ products and brands. The existence of familiarity bias amongst individual investors was investigated to determine if individuals prefer to invest in companies they are familiar with as opposed to unfamiliar companies. Methodology: A quantitative approach was followed. An online survey was used to show images of familiar and unfamiliar company brands to respondents, whereafter respondents were asked to indicate whether they will invest in the shares of the identified companies. The statistical analysis entailed descriptive statistics as well as one-way analyses of variance to test the stated hypotheses. Main findings: The results of this exploratory study indicate that investors do exhibit familiarity bias when choosing between different companies to invest in. Value of the research: The inclination of individual investors to invest in familiar corporate brands can have implications for the marketing industry, financial markets, the performance of companies as well as the investment performance of individual investors in the sense that it would seem that company brands could have an influence on investment decisions.

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Section: Familiarity Biasmentioning

confidence: 99%

Section: Research Objectives and Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The familiar versus the unfamiliar: Familiarity bias amongst individual investors

Erasmus

Gerber

2017

Acta Commercii

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“…According to Foad (2011), familiarity bias arises in to two forms; domestic (local biases) and international (home biases). Local biases occur when investor shows his preference to assets within his country to which he is more familiar, he prefers domestic assets portfolio diversification even he could gain from unknown or international portfolio diversification.…”

Section: Familiarity Bias and Portfolio Diversificationmentioning

confidence: 99%

Financial Literacy, Behavioral Biases and Investor's Portfolio Diversification: Empirical Study of an Emerging Stock Market

Anwar¹,

Khan²,

Rehman³

2017

j.financ.econ.res

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The purpose of this study is to check the impact of financial literacy and behavioral biases on investor's portfolio diversification. Data were collected through questionnaire using sample size of 181 investors trading in Pakistan Stock Market. The results indicate that financial literacy has insignificant and positive influence on investor's portfolio diversification, behavioral biases such as familiarity and availability biases have insignificant and negative while overconfidence bias has significant negative impact on investor's portfolio diversification. Portfolio size also has significant positive impact on portfolio diversification. The findings suggest the implementation of financial literacy programs to facilitate the investors, trading in different stocks. The implications for practice were discussed in detail.

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“…Portraying a bias toward familiar is an indicative of lack of diversification and can lead investors into losing their investment (Foad, 2010). (Tanner, 2015) provides a case study (Enron scandal) as an example of investors' investments been wiped out because of familiarity bias.…”

Section: ) Familiarity Biasesmentioning

confidence: 99%

Review of Stock Markets’ Reaction to New Events: Evidence from Brexit

Quaye¹,

Mu²,

Abudu³

et al. 2016

JFRM

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Several studies have evolved to deal with the determinants of stock market volatility. However, there exists a gap in literature with regards to the interrelation among the broad categories of factors that trigger stock market reaction namely company fundaments, technical factors and market sentiments. This paper provides a holistic and comprehensive theoretical review of drivers of stock markets' reaction as well as designs an interrelated conceptual framework of the factors that influence investors' decision making to fill the gap in literature. Brexit is presented as a case study to illustrate how investors and stock markets are affected by new events or information. This study will reveal some of the global staggering effects of Brexit at the end of trading on June 24, 2016 in areas such as currencies, stock markets, banks, commodities, bonds, automakers and homebuilders as well as hedge fund. Barely 24 hours after the results of Brexit were declared; global stock markets lost about $2 trillion in value. The British pound plunged to almost $1.33, its lowest level in over 30 years against the US dollar and gold proved to be one of the few safe havens for investors on that day. In order for investors to insulate themselves against loses from Black Swans events, the conclusion of this study recommends some protective mechanisms for investors which include avoidance of overexposure and stockpiling of cash.

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Familiarity Bias

Cited by 16 publications

References 58 publications

The familiar versus the unfamiliar: Familiarity bias amongst individual investors

The familiar versus the unfamiliar: Familiarity bias amongst individual investors

Financial Literacy, Behavioral Biases and Investor's Portfolio Diversification: Empirical Study of an Emerging Stock Market

Review of Stock Markets’ Reaction to New Events: Evidence from Brexit

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