East or West, Home Is Best: The Birthplace Bias of Individual Investors

43 Pages Posted: 14 Aug 2012 Last revised: 28 Oct 2016

See all articles by Ted Lindblom

Ted Lindblom

Göteborg University - School of Business, Economics and Law

Taylan Mavruk

University of Gothenburg

Stefan Sjögren

University of Gothenburg - Centre for Finance - School of Business, Economics and Law

Date Written: March 31, 2016

Abstract

We introduce the concept of “birthplace bias” to examine the extent to which individual investors’ local bias is explained by their place of birth. In addition, we conduct a counterfactual analysis in order to compare their biases before and after they move to a new place. We find that the place of birth is an important determinant in the portfolio choice of the average individual investor in particularly urban areas. We also find that individual investors who move back to their birthplace (home-comers) tend to increase their local bias over time more than other movers. While diversification is profitable regardless of portfolio distortion, the less diversified individual investors do on average neither gain nor lose relative to the market from being birthplace and/or locally biased. This implies rationality; individual investors seem to choose proximate stocks whenever they face equal or nearly equal costs just out of pure “indisputable preferences.”

Keywords: Portfolio choice, Birthplace bias, Local bias, Counterfactual bias, Information asymmetry, Familiarity, Indisputable preferences

JEL Classification: G11, G14, G15

Suggested Citation

Lindblom, Ted and Mavruk, Taylan and Sjogren, Stefan, East or West, Home Is Best: The Birthplace Bias of Individual Investors (March 31, 2016). Journal of Banking and Finance, Forthcoming, Swedish House of Finance Research Paper No. 16-20, Available at SSRN: https://ssrn.com/abstract=2129290 or http://dx.doi.org/10.2139/ssrn.2129290

Ted Lindblom (Contact Author)

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden
+46317861497 (Phone)
+46317864492 (Fax)

HOME PAGE: http://www.cff.handels.gu.se/faculty-presentation/ted-lindblom/

Taylan Mavruk

University of Gothenburg ( email )

Vasagatan 1
Gothenburg, 40530
Sweden

HOME PAGE: http://www.cff.handels.gu.se/faculty-presentation/taylan-mavruk/

Stefan Sjogren

University of Gothenburg - Centre for Finance - School of Business, Economics and Law ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
240
Abstract Views
2,228
rank
185,816
PlumX Metrics