0347859 20240103193928.120101103235959.9 6 s. cav_un_epca*0346970978-80-7394-218-218-23České BudějoviceUniversity of South Bohemia2010HoudaM.FriebelováJ. Equity home bias optimal investment portfolio behavioral finance cav_un_auth*0264562 Báťa Karel Ekonometrie Department of Econometrics E E UTIA-B Ústav teorie informace a automatizace AV ČR, v. v. i. cav_un_auth*0101206 Šmíd Martin Ekonometrie Department of Econometrics E E UTIA-B Department of Econometrics Ústav teorie informace a automatizace AV ČR, v. v. i. http://library.utia.cas.cz/separaty/2010/E/bata-0347859.pdf GA402/09/0965 GA ČR cav_un_auth*0253176 GD402/09/H045 GA ČR cav_un_auth*0253998 GAP402/10/1610 GA ČR cav_un_auth*0263483 CEZ:AV0Z10750506 Investors reveal a tendency to prefer domestic over foreign equities despite the financial losses. From institutional perspective the factors that cause home biasness are the barriers to entry the foreign markets, transaction costs, illiquidity, asymmetric information and information costs, corporate governance and inflation and exchange rate risks. Behavioral finance argues that irrationality of investors cause the home biasness. Investors tend to be under the influence of psychological biases: optimism, overconfidence, social identity, narrow framing and loss aversion. In this paper we introduce a model of optimal portfolio of Czech investors with three utility functions: Markowitz, exponential and CRRA. The prediction of the model without short selling suggests that Czech investors should have more than 60 % (between 72 - 83 % for feasible levels of risk aversion) in domestic equities. The OECD data claim that they hold around 87 % in domestic equities. cav_un_auth*0264432 28-th International Conference on Mathematical Methods in Economics České Budějovice 08.09.2010-10.09.2010 CZ 2011 AH http://hdl.handle.net/11104/0188538 2010 cav_un_epca*0346970 Proceedings of the 28th International Conference on Mathematical Methods in Economics 2010 978-80-7394-218-2 18 23 České Budějovice University of South Bohemia 2010 Houda M. 340 Friebelová J. 340