Location Choice, Portfolio Choice

66 Pages Posted: 17 Jan 2017

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: January 2017

Abstract

Households hold nondiversified stock portfolios of firms headquartered near their city of residence. Explanations assign a causal role for proximity, either in generating an informational advantage or a familiarity bias. Empirical analyses assume households locate randomly, even though they optimally select a city. This selection is important since latent location factors might be correlated with latent demand for local stocks. Building on location choice models from urban economics, we develop a Heckman (1977)-style model to account for the effect of location choices on portfolio choices. Adjusting for selection significantly reduces local bias and the performance of local stock picks.

Suggested Citation

Branikas, Ioannis and Hong, Harrison G. and Xu, Jiangmin, Location Choice, Portfolio Choice (January 2017). NBER Working Paper No. w23040. Available at SSRN: https://ssrn.com/abstract=2900045

Ioannis Branikas (Contact Author)

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

Peking University - Department of Finance ( email )

5 Yiheyuan Road
Beijing 100871
China

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