There is No Place Like Home: A Spatial Analysis of Investor Choice of Stock Exchange
26 Pages Posted: 17 Mar 2008 Last revised: 26 Mar 2008
Date Written: August 2007
Abstract
We show that place of residence affects where investors trade stocks. We analyze transaction, account, and demographic data from some 19,000 retail customers of a German online brokerage house and find that investors prefer nearby stock exchanges. This local exchange bias can hardly be explained by informational advantage or lower transaction cost, but is more likely to be caused by behavioural biases. We also show that local exchange bias helps to explain equity home bias in investor portfolios. We conjecture that home bias is largely due to the behavioural biases which also underlie exchange bias. Finally, we show that independent financial advisors (IFAs) reduce both the exchange bias and the home bias of their clients. This last finding is consistent with IFAs helping their clients avoid costly investment mistakes.
Keywords: Household Finance, Behavioral Bias, Financial Advice, Spatial Analysis
JEL Classification: G11, G21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Geography of Investment: Informed Trading and Asset Prices
-
Social Interaction and Stock Market Participation
By Jeffrey D. Kubik, Harrison G. Hong, ...
-
Social Interaction and Stock-Market Participation
By Jeffrey D. Kubik, Harrison G. Hong, ...
-
Individual Investors and Local Bias
By Mark S. Seasholes and Ning Zhu
-
Thy Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers
By Jeffrey D. Kubik, Harrison G. Hong, ...
-
The Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trade of Money Managers
By Jeffrey D. Kubik, Harrison G. Hong, ...
-
Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues' Choices
By Esther Duflo and Emmanuel Saez
-
Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues' Choices
By Esther Duflo and Emmanuel Saez
-
The Local Bias of Individual Investors
By Ning Zhu