Local Does as Local is: Information Content of the Geography of Individual Investors' Common Stock Investments

48 Pages Posted: 16 May 2003 Last revised: 1 Oct 2009

See all articles by Zoran Ivkovich

Zoran Ivkovich

Michigan State University, Department of Finance

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2003

Abstract

Using a data set on the investments made by a large number of retail investors from 1991 to 1996, we find that households exhibit a strong preference for local investment - the average household invests nearly a third of their portfolio in firms headquartered within 250 miles. We test whether this locality bias is driven by information or by simple familiarity. The average household generates an additional return of 3.7% per year from its local holdings relative to its non-local holdings, suggesting local investors are able to exploit local knowledge. The excess return to investing locally is even larger among stocks not in the S&P 500 index (firms where informational asymmetries between local and non-local investors may be largest), while there is no excess return earned by households that invest in local S&P 500 stocks.

Suggested Citation

Ivkovich, Zoran and Weisbenner, Scott J., Local Does as Local is: Information Content of the Geography of Individual Investors' Common Stock Investments (May 2003). NBER Working Paper No. w9685. Available at SSRN: https://ssrn.com/abstract=406057

Zoran Ivkovich

Michigan State University, Department of Finance ( email )

315 Eppley Center
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United States

Scott J. Weisbenner (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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