IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v51y2023ics1544612322006237.html
   My bibliography  Save this article

Social distancing and local bias

Author

Listed:
  • Liu, Yi
  • Jin, Justin

Abstract

This study investigates the effect of social distancing on the local bias of institutional investors. Using SafeGraph’s Social Distancing Metrics data and SEC’s EDGAR 13F filings, we find that stay-at-home duration ratio decreases institutional investors’ local holdings and firms’ institutional ownership in the U.S. We also exploit the lockdown orders across various states during the COVID-19 pandemic as exogenous shocks to conduct the stacked regression estimation, which yields a similar result. Our channel analysis using abnormal return indicates that social distancing mitigates local bias by constraining the information advantage of local investors rather than alleviating their cognitive bias.

Suggested Citation

  • Liu, Yi & Jin, Justin, 2023. "Social distancing and local bias," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006237
    DOI: 10.1016/j.frl.2022.103446
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612322006237
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2022.103446?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zoran Ivković & Scott Weisbenner, 2005. "Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments," Journal of Finance, American Finance Association, vol. 60(1), pages 267-306, February.
    2. Sumedha Gupta & Laura Montenovo & Thuy Nguyen & Felipe Lozano‐Rojas & Ian Schmutte & Kosali Simon & Bruce A. Weinberg & Coady Wing, 2023. "Effects of social distancing policy on labor market outcomes," Contemporary Economic Policy, Western Economic Association International, vol. 41(1), pages 166-193, January.
    3. William G. Heninger & Alan R. Dennis & Kelly McNamara Hilmer, 2006. "Research Note: Individual Cognition and Dual-Task Interference in Group Support Systems," Information Systems Research, INFORMS, vol. 17(4), pages 415-424, December.
    4. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    5. Huberman, Gur, 2001. "Familiarity Breeds Investment," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-680.
    6. George M. Korniotis & Alok Kumar, 2013. "State-Level Business Cycles and Local Return Predictability," Journal of Finance, American Finance Association, vol. 68(3), pages 1037-1096, June.
    7. Wagner, Alexander F. & Glossner, Simon & Matos, Pedro Pinto & Ramelli, Stefano, 2022. "Do institutional investors stabilize equity markets in crisis periods? Evidence from COVID-19," CEPR Discussion Papers 15070, C.E.P.R. Discussion Papers.
    8. Diane Alexander & Ezra Karger, 2020. "Do Stay-at-Home Orders Cause People to Stay at Home? Effects of Stay-at-Home Orders on Consumer Behavior," Working Paper Series WP-2020-12, Federal Reserve Bank of Chicago, revised 19 Aug 2021.
    9. Andriy Bodnaruk, 2009. "Proximity Always Matters: Local Bias When the Set of Local Companies Changes," Review of Finance, European Finance Association, vol. 13(4), pages 629-656.
    10. Simon Glossner & Pedro Matos & Stefano Ramelli & Alexander F. Wagner, 2020. "Where Do Institutional Investors Seek Shelter when Disaster Strikes? Evidence from COVID-19," Swiss Finance Institute Research Paper Series 20-56, Swiss Finance Institute.
    11. Baik, Bok & Kang, Jun-Koo & Kim, Jin-Mo, 2010. "Local institutional investors, information asymmetries, and equity returns," Journal of Financial Economics, Elsevier, vol. 97(1), pages 81-106, July.
    12. Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August.
    13. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    14. Wei, Chishen & Zhang, Lei, 2020. "Trust and Local Bias," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(7), pages 2211-2245, November.
    15. Mark S. Seasholes & Ning Zhu, 2010. "Individual Investors and Local Bias," Journal of Finance, American Finance Association, vol. 65(5), pages 1987-2010, October.
    16. Heath, Chip & Tversky, Amos, 1991. "Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eduard Gaar & David Scherer & Dirk Schiereck, 2022. "The home bias and the local bias: A survey," Management Review Quarterly, Springer, vol. 72(1), pages 21-57, February.
    2. Shive, Sophie, 2012. "Local investors, price discovery, and market efficiency," Journal of Financial Economics, Elsevier, vol. 104(1), pages 145-161.
    3. Shao, Ran & Wang, Na, 2021. "Trust and local bias of individual investors," Journal of Banking & Finance, Elsevier, vol. 133(C).
    4. David C. Ling & Andy Naranjo & Benjamin Scheick, 2021. "There is no place like home: Information asymmetries, local asset concentration, and portfolio returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(1), pages 36-74, March.
    5. Dlugosch, Dennis & Horn, Kristian & Wang, Mei, 2023. "New experimental evidence on the relationship between home bias, ambiguity aversion and familiarity heuristics," Journal of Economics and Business, Elsevier, vol. 125.
    6. Aabo, Tom & Lee, Suin & Pantzalis, Christos & Park, Jung Chul, 2020. "Know thy neighbor: Political uncertainty and the informational advantage of local institutional investors," Journal of Banking & Finance, Elsevier, vol. 113(C).
    7. Itzhak Ben-DAVID & Francesco A. FRANZONI & Rabih MOUSSAWI & John SEDUNOV III, 2015. "The Granular Nature of Large Institutional Investors," Swiss Finance Institute Research Paper Series 15-67, Swiss Finance Institute, revised Apr 2016.
    8. Hamberg, Mattias & Mavruk, Taylan & Sjögren, Stefan, 2013. "Investment allocation decisions, home bias and the mandatory IFRS adoption," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 107-130.
    9. Eckel, Stefanie & Löffler, Gunter & Maurer, Alina & Schmidt, Volker, 2011. "Measuring the effects of geographical distance on stock market correlation," Journal of Empirical Finance, Elsevier, vol. 18(2), pages 237-247, March.
    10. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    11. Hvide, Hans K. & Östberg, Per, 2014. "Stock investments at work," CEPR Discussion Papers 9837, C.E.P.R. Discussion Papers.
    12. Xu, Limin & Yu, Chia-Feng (Jeffrey) & Zurbruegg, Ralf, 2020. "The benefit of being a local leader: Evidence from firm-specific stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 65(C).
    13. David C. Ling & Chongyu Wang & Tingyu Zhou, 2021. "The Geography of Real Property Information and Investment: Firm Location, Asset Location and Institutional Ownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(1), pages 287-331, March.
    14. Carole Gresse & Hugo Marin, 2022. "Geographical Proximity and Enhanced Attention in P2B Crowdlending Strategies," Post-Print hal-03960132, HAL.
    15. Berry, Thomas & Gamble, Keith Jacks, 2013. "Informed local trading prior to earnings announcements," Journal of Financial Markets, Elsevier, vol. 16(3), pages 505-525.
    16. Aigbe Akhigbe & Melinda Newman & Ann Marie Whyte, 2021. "Is There a Differential Market Size Effect in U.S. Free Agent Signings? Evidence From Localized Sentiment Trading," Journal of Sports Economics, , vol. 22(6), pages 678-721, August.
    17. García, Diego & Norli, Øyvind, 2012. "Geographic dispersion and stock returns," Journal of Financial Economics, Elsevier, vol. 106(3), pages 547-565.
    18. Benson, Bradley W. & Chen, Yu & James, Hui L. & Park, Jung Chul, 2020. "So far away from me: Firm location and the managerial ownership effect on firm value," Journal of Corporate Finance, Elsevier, vol. 64(C).
    19. Bradley, Daniel & Pantzalis, Christos & Yuan, Xiaojing, 2016. "The influence of political bias in state pension funds," Journal of Financial Economics, Elsevier, vol. 119(1), pages 69-91.
    20. Baltzer, Markus & Stolper, Oscar & Walter, Andreas, 2011. "Home-field advantage or a matter of ambiguity aversion? Local bias among German individual investors," Discussion Paper Series 1: Economic Studies 2011,23, Deutsche Bundesbank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006237. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.