50 Pages Posted: 24 May 2011 Last revised: 3 Aug 2015
Date Written: April 22, 2012
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: 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
By Ning Zhu