Location Choice, Portfolio Choice

47 Pages Posted: 18 Nov 2016 Last revised: 7 Nov 2019

See all articles by Ioannis Branikas

Ioannis Branikas

University of Oregon, Lundquist College of Business, Department of Finance

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Jiangmin Xu

Peking University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 17, 2019

Abstract

Households hold undiversified stock portfolios of firms headquartered near their city of residence. Leading explanations assign a causal role for proximity. The literature neglects that distance is endogenous. Households may locate based on unobservables such as optimism about a city's economic prospects, which can be correlated with latent local-stock demand. We use location choice models to account for this selection. We propose as instruments that older households prefer to locate in recreational areas for non-pecuniary reasons. Our analysis based on a widely used household dataset yields significantly smaller estimates for proximity in determining portfolio choice compared to those in the literature.

Keywords: Location Choice, Portfolio Choice, Household Finance, Local Bias, Selection Correction

JEL Classification: D1, G02, G1, G11, G12

Suggested Citation

Branikas, Ioannis and Hong, Harrison G. and Xu, Jiangmin, Location Choice, Portfolio Choice (October 17, 2019). 2019 Academic Research Colloquium for Financial Planning and Related Disciplines; Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2870680 or http://dx.doi.org/10.2139/ssrn.2870680

Ioannis Branikas

University of Oregon, Lundquist College of Business, Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jiangmin Xu (Contact Author)

Peking University - Department of Finance ( email )

5 Yiheyuan Road
Beijing 100871
China

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