Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments

Scott Weisbenner and Zoran Ivkovich

No 9685, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2003-05
New Economics Papers: this item is included in nep-cfn and nep-geo
Note: AP
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Citations: View citations in EconPapers (16)

Published as Weisbenner, Scott and Zoran Ivković. “Local Does as Local Is: Information Content of the Geography of Individual Investors’ Common Stock Investments." Journal of Finance 60, 1 (2005): 267-306.

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