No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice

50 Pages Posted: 24 May 2011 Last revised: 3 Aug 2015

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management

Date Written: April 22, 2012

Abstract

We show that familiarity affects the portfolio decisions of mutual fund managers. Controlling for fund location, funds overweight stocks from their managers' home states by 12% compared to their peers. In team-managed funds, home-state overweighting is 37% larger than the fund location effect. The home-state bias is stronger if the manager is inexperienced, is resource-constrained, or spent more time in his home state. Home-state stocks do not outperform other holdings, confrming that home-state investments are not informed. The overweighting also leads to excessively risky portfolios.

Keywords: Mutual Funds, familiarity bias, behavioral finance

JEL Classification: G11, G29

Suggested Citation

Pool, Veronika Krepely and Stoffman, Noah and Yonker, Scott E., No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice (April 22, 2012). Available at SSRN: https://ssrn.com/abstract=1844464 or http://dx.doi.org/10.2139/ssrn.1844464

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
(812) 856-5664 (Phone)

HOME PAGE: http://kelley.iu.edu/nstoffma/

Scott E. Yonker (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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