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

  • ZORAN IVKOVIC
  • SCOTT WEISBENNER
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    Using data on the investments a large number of individual investors made through a discount broker from 1991 to 1996, we find that households exhibit a strong preference for local investments. We test whether this locality bias stems from information or from simple familiarity. The average household generates an additional annualized return of 3.2% from its local holdings relative to its nonlocal holdings, suggesting that local investors can exploit local knowledge. Excess returns to investing locally are even larger among stocks not in the S&P 500 index (firms for which information asymmetries between local and nonlocal investors may be largest). Copyright 2005 by The American Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2005.00730.x
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    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 60 (2005)
    Issue (Month): 1 (02)
    Pages: 267-306

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    Handle: RePEc:bla:jfinan:v:60:y:2005:i:1:p:267-306
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