Working Paper: NBER ID: w9685
Authors: Zoran Ivkovich; Scott Weisbenner
Abstract: Using a data set on the investments made by a large number of retail investors from 1991 to 1996, we find that households exhibit a strong preference for local investment - the average household invests nearly a third of their portfolio in firms headquartered within 250 miles. We test whether this locality bias is driven by information or by simple familiarity. The average household generates an additional return of 3.7% per year from its local holdings relative to its non-local holdings, suggesting local investors are able to exploit local knowledge. The excess return to investing locally is even larger among stocks not in the S&P 500 index (firms where informational asymmetries between local and non-local investors may be largest), while there is no excess return earned by households that invest in local S&P 500 stocks.
Keywords: No keywords provided
JEL Codes: G11; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| locality bias (R23) | investment returns (G11) |
| local investments (F21) | investment returns (G11) |
| local knowledge (D83) | local investments (F21) |
| local investments (non-S&P 500) (G19) | investment returns (G11) |
| S&P 500 stocks (G12) | no excess return for local investments (G15) |