There's No Place Like Home: Information Asymmetries, Local Asset Concentration, and Portfolio Returns

Abstract

We provide robust evidence showing local information plays a significant role in local asset concentrations and return outperformance. Using a unique setting with significant cross-market information asymmetries and large sample of individual commercial property holdings, we find property portfolio managers concentrate an economically significant portion of their portfolios in their headquarter location. We further document a significant positive relation between local concentration and portfolio returns in markets where information asymmetry is most severe. Through numerous robustness and loan-level identification tests, we further confirm an information-based channel of asset concentration and return effects that is distinct from risk-based or behavioral explanations.

Keywords: Asset Concentration, Information Asymmetry, Home Bias, Location, Real Estate Returns

JEL Classification: D82, G11, R3