Individuals and Their Local Utility Stocks: Preference for the Familiar

Authors


  • We would like to thank seminar participants at Washington State University, Robert Van Ness, and an anonymous reviewer for their helpful comments. The authors retain full responsibility for any remaining errors.

Department of Finance, Insurance and Law, College of Business, Illinois State University, Campus Box 5480, Normal, IL 61790-5480; Phone: (309) 438-5658; Fax: (309) 438-3579; E-mail: avarma@ilstu.edu.

Abstract

We find individuals are four times more likely to purchase stocks of their local direct utility company as opposed to utility companies operating outside their state of residence. Our tests reveal that individuals do not possess superior or private information about their local utilities. Indeed, individual preference for their local utility stocks seems to be driven by preference for familiar assets, even in the presence of a desire for high dividend yields. In addition, affluence and sophistication do not reduce local bias.

Ancillary