How Does Language Impact Foreign Investing in a Multilingual Country?

33 Pages Posted: 18 Jul 2017

See all articles by Anthony Bellofatto

Anthony Bellofatto

Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Date Written: June 14, 2017

Abstract

Several papers have already highlighted that retail investors tend to favor stocks listed in countries that share a common language. In this paper, we investigate whether the language difference within the same country matters to understand foreign investing. Using a database coming from a Belgian brokerage house, we confirm the language effect at a national level and furthermore provide evidence that the difference of languages between French- and Dutch-speakers in Belgium induces differences in their foreign investment behavior. Our results show that French(Dutch)-speaking investors tend to overweight more their allocation in French(Dutch) stocks. We also show that the language effect varies across investors' characteristics. The level of education and financial literacy seem to be key drivers: investors who report a higher level of education and a higher level of financial literacy tend to be less subject to the langue effect. Finally, we find that the preference for stocks listed in countries that share the same language does not seem to be information-driven. Excess allocation in French and Dutch stocks does not seem to be due to better information-processing but well due to an exposure to a behavioral bias.

Keywords: Retail Investors, Foreign Investing, Familiarity, Language

JEL Classification: G02, G11

Suggested Citation

Bellofatto, Anthony, How Does Language Impact Foreign Investing in a Multilingual Country? (June 14, 2017). Available at SSRN: https://ssrn.com/abstract=3001825 or http://dx.doi.org/10.2139/ssrn.3001825

Anthony Bellofatto (Contact Author)

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

Chaussée de Binche, 151
Mons, 7000
Belgium

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