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The Only Game in Town: Stock-Price Consequences of Local Bias


Jeffrey D. Kubik


Syracuse University - Department of Economics

Harrison G. Hong


Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Jeremy C. Stein


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

July 2005

Harvard Institute of Economic Research Discussion Paper No. 2077

Abstract:     
Theory suggests that, in the presence of local bias, the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region. We test this proposition using data on U.S. Census regions and states, and find clear-cut support for it. Most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita. Regions with low population density - e.g., the Deep South - are home to relatively few firms per capita, which leads to higher stock prices via an "only-game-in-town" effect. This effect is especially pronounced for smaller, less visible firms, where the impact of location on stock prices is roughly 12 percent.

Number of Pages in PDF File: 51

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Date posted: July 19, 2005  

Suggested Citation

Kubik, Jeffrey D. and Hong, Harrison G. and Stein, Jeremy C., The Only Game in Town: Stock-Price Consequences of Local Bias (July 2005). Harvard Institute of Economic Research Discussion Paper No. 2077. Available at SSRN: http://ssrn.com/abstract=756807 or http://dx.doi.org/10.2139/ssrn.756807

Contact Information

Jeffrey D. Kubik
Syracuse University - Department of Economics ( email )
426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-9063 (Phone)
315-443-1081 (Fax)
Harrison G. Hong
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jeremy C. Stein (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-496-6455 (Phone)
617-496-7352 (Fax)
HOME PAGE: http://post.economics.harvard.edu/faculty/stein/stein.html
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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