Does Home Bias Amplify the Disposition Effect? Evidence from Retail Forex Trading

The disposition effect is a well-documented behavioral bias. While investigated with other biases, little is known about how this effect interacts with home bias, the preference for familiar domestic assets. Using a proprietary dataset of over one million retail forex trades by 4226 investors across 126 countries, we investigate how currency familiarity interacts with return realization behavior. We find that investors are significantly more prone to sell gains quickly and hold on to losses when trading home currency. These patterns persist across robustness checks and are particularly strong among older investors, high-balance accounts, and United States traders. Our findings complement experimental results by demonstrating that familiarity-based reluctance to realize losses also manifests in real-world trading. By integrating home bias into the disposition effect, we extend the literature on behavioral trading and highlight a novel channel through which familiarity shapes dynamic financial decision-making.