Home Bias at Home: Local Equity Preference in Domestic Portfolios

Authors

  • Joshua D. Coval,

    1. University of Michigan Business School
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    • Coval is from the University of Michigan Business School and Moskowitz is from the Graduate School of Business, University of Chicago. We thank Michael Brennan, Bhagwan Chowdhry, Gordon Delianedis, Mark Grinblatt, Gur Huberman, Ed Leamer, Tyler Shumway, two anonymous referees, the editor, René Stulz, and seminar participants at MIT (Sloan) and Michigan for helpful comments and discussions. Moskowitz thanks the Center for Research in Securities Prices for financial support.
  • Tobias J. Moskowitz

    1. Graduate School of Business, University of Chicago
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    • Coval is from the University of Michigan Business School and Moskowitz is from the Graduate School of Business, University of Chicago. We thank Michael Brennan, Bhagwan Chowdhry, Gordon Delianedis, Mark Grinblatt, Gur Huberman, Ed Leamer, Tyler Shumway, two anonymous referees, the editor, René Stulz, and seminar participants at MIT (Sloan) and Michigan for helpful comments and discussions. Moskowitz thanks the Center for Research in Securities Prices for financial support.

ABSTRACT

The strong bias in favor of domestic securities is a well-documented characteristic of international investment portfolios, yet we show that the preference for investing close to home also applies to portfolios of domestic stocks. Specifically, U.S. investment managers exhibit a strong preference for locally headquartered firms, particularly small, highly levered firms that produce nontraded goods. These results suggest that asymmetric information between local and nonlocal investors may drive the preference for geographically proximate investments, and the relation between investment proximity and firm size and leverage may shed light on several well-documented asset pricing anomalies.

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