Home Bias in Online Investments: An Empirical Study of an Online Crowdfunding Market

An extensive literature in economics and finance has documented " home bias, " the tendency that transactions are more likely to occur between parties in the same country or state, rather than outside. Can the Internet help overcome this spatial divide, especially in the context of online financial investments? We address this question in the context of a large online crowd funding marketplace. We analyze detailed transaction data over an extended period of time under typical market conditions, as well as those from a natural experiment, a period in which investors were restricted to only one state due to regulations. We further employ a quasi-experimental design by tracking borrowers who moved across state boundaries, and study how investors' behaviors change when those borrowers moved. Home bias appears to be a robust phenomenon under all three scenarios. This finding has important implications not just for the home bias literature, but also more broadly for the growing research and policy interest on Internet-based crowd funding, especially as a new channel for entrepreneurial financing.