Distance, Language, and Culture Bias: The Role of Investor Sophistication

27 Pages Posted: 31 May 2000  

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

Matti Keloharju

Aalto University - School of Business; Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Date Written: February 2000

Abstract

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.

JEL Classification: G10

Suggested Citation

Grinblatt, Mark and Keloharju, Matti, Distance, Language, and Culture Bias: The Role of Investor Sophistication (February 2000). Yale ICF Working Paper No. 00-04; Yale SOM Working Paper No. ICF 00-04. Available at SSRN: https://ssrn.com/abstract=222169 or http://dx.doi.org/10.2139/ssrn.222169

Mark Grinblatt (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matti Keloharju

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland
+358 40 353 8043 (Phone)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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