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Home-field advantage or a matter of ambiguity aversion? Local bias among German individual investors

  • Baltzer, Markus
  • Stolper, Oscar
  • Walter, Andreas

We analyze the effect of geographic proximity on individual investors' portfolio choice. Using a unique data set which covers the common stockholdings of private households at regional banks in Germany, we document strong and consistent overinvestment in geographically close companies. Our results conclusively reject the presence of an informational advantage ('home-field advantage') of local over non-local investors. Instead, households' preference for local equity turns out to be familiarity-driven. We conclude that individual investors' local bias is induced by ambiguity aversion in the portfolio selection process rather than a trading strategy based on superior information about local companies.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2011,23.

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Date of creation: 2011
Date of revision:
Handle: RePEc:zbw:bubdp1:201123
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  18. Cao, Henry & Han, Bing & Hirshleifer, David & Zhang, Harold, 2007. "Fear of the Unknown: Familiarity and Economic Decisions," MPRA Paper 6512, University Library of Munich, Germany.
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