We show that two major puzzles in financial economics, the home bias puzzle in international equity allocations and the choice of destination market for cross-listing, are related. In particular, the level of cross-listing activity from the home market to a foreign market is strongly positively related to the degree of over-/under-investment of the home market investors in that particular foreign market, after controlling for other potential explanations of cross-listing decisions. This finding suggests that corporate managers, when making a cross-listing decision, may be prone to the same behavioral/familiarity bias as investors, and both puzzles may in fact be the same.
- Familiarity bias
- Foreign bias