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Home Bias at Home: Local Equity Preference in Domestic Portfolios

Joshua D. Coval and Tobias J. Moskowitz
The Journal of Finance
Vol. 54, No. 6 (Dec., 1999), pp. 2045-2073
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/797987
Page Count: 29
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Home Bias at Home: Local Equity Preference in Domestic Portfolios
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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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