Distance, Language, and Culture Bias: The Role of Investor Sophistication
University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)
Aalto University - School of Business; Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)
Yale ICF Working Paper No. 00-04; Yale SOM Working Paper No. ICF 00-04
This paper documents that investors are more likely to hold, buy and sell the stocks of Finnish firms that are located close to the investor, that communicate in the investor's native tongue, and that have chief executives of the same cultural background. These distance, language and cultural biases are less prevalent among the most investment-savvy institutions than they are among both households and less savvy institutions. Regression analysis indicates (1) that the marginal effect of distance is less for firms that are more nationally known, and for distances that exceed one hundred kilometers and (2) more sophisticated individuals exhibit less distance bias.
Number of Pages in PDF File: 27
JEL Classification: G10
Date posted: May 31, 2000