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- Lindblom, Ted, 1956, et al.
(author)
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East or West, Home Is Best: The Birthplace Bias of Individual Investors
- 2018
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In: Journal of Banking & Finance. - : Elsevier BV. - 0378-4266. ; 92:July 2018, s. 323-339
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Journal article (peer-reviewed)abstract
- We introduce the concept of “birthplace bias” to examine the extent to which individual investors’ local bias is explained by their place of birth. In addition, we conduct a counterfactual analysis in order to compare their biases before and after they move to a new place. We find that the place of birth is an important determinant in the portfolio choice of the average individual investor in particularly urban areas. We also find that individual investors who move back to their birthplace (home-comers) tend to increase their local bias over time more than other movers. While diversification is profitable regardless of portfolio distortion, the less diversified individual investors do on average neither gain nor lose relative to the market from being birthplace and/or locally biased. This implies rationality; individual investors seem to choose proximate stocks whenever they face equal or nearly equal costs just out of pure “indisputable preferences.”
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| 2. |
- Lindblom, Ted, 1956, et al.
(author)
-
Individual Investors’ Portfolio Choice and Birthplace Bias
- 2012
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In: SSRN. - : Elsevier BV.
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Research review (peer-reviewed)abstract
- This paper examines whether the geographical proximity bias of individual investors stems from information asymmetry or behavioral factors. We introduce the concept of ‘Birthplace Bias’ and find that the proximity bias is strongest for investors that have never moved away from the area they were born. It is stronger the longer the investor has lived in the same geographical area. However, neither local bias nor birthplace bias appears to pay off in terms of abnormal portfolio return. This has policy implications for the confidence in financial markets as it suggests that Efficient Market Hypothesis holds.
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| 3. |
- Lindblom, Ted, 1956, et al.
(author)
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Individual Investors’ Portfolio Choice and Birthplace Bias Evidence from portfolios of European investors – the case of Sweden
- 2013
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In: Mölle 2013, The 15h Annual SNEE European Integration Conference.
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Conference paper (other academic/artistic)abstract
- Geographical proximity bias of investors is a widely studied phenomenon. In previous research, the main focus has been on the distortion of US portfolios. The empirical evidence from Europe is rather limited. Using Swedish data, this paper examines whether the geographical proximity bias of individual investors stems from information asymmetry or behavioral factors. We introduce the concept of ‘birthplace bias’ and find that the proximity bias is strongest for investors who have never moved away from the area in which they were born. The bias is stronger the longer the investor has lived in the same geographical area. However, neither local bias nor birthplace bias demonstrates an advantage in terms of abnormal portfolio return. This result implies that proximity bias is not driven by information asymmetry, which may have policy implications with regard to the confidence in financial markets.
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| 4. |
- Lindblom, Ted, 1956, et al.
(author)
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Proximity Bias in Investors’ Portfolio Choice
- 2017
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Book (other academic/artistic)abstract
- This book helps readers understand the widely documented distortion in the portfolio choice of individual investors toward proximate firms – the proximity bias phenomenon. First, it recapitulates the fundamentals of modern portfolio theory. It then goes on to describe and demonstrate different approaches on how to measure proximity bias and identifies and examines potential motives and reasons for such a bias. In addition, the book presents new analysis on the financial effects of individual investors’ proximity bias, explaining and contributing with possible policy implications on their portfolio distortion. This book will be of interest to students and researchers, as well as decision-makers in business firms and households.
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| 5. |
- Lindblom, Ted, 1956, et al.
(author)
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The Birthplace Bias of Individual Investors
- 2015
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In: Institutional and Individual Investors: Saving for Old Age Conference, 22-23 June 2015, School of Management, University of Bath, UK.
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Conference paper (other academic/artistic)abstract
- We introduce the concepts of “birthplace bias” and “counterfactual bias” to examine individual investors’ bias towards their birthplace and to the new location after they move from their birthplace. We also measure the capital invested in the average portfolio of proximity biased investor. We find that the proximity bias phenomenon is largely an urban phenomenon. We also find that individuals who move to a new district tend to increase their local bias, in the new location, overtime while their birthplace bias remains more or less constant. None of the proximity biased portfolios earn abnormal returns. We partly explain this by the familiarity hypothesis, but we cannot rule out “overconfidence”. Moreover, we find that the average proximity biased portfolio does not underperform the market. Individual investors who face equal costs may simply prefer the familiar stocks. This implies “indisputable preference” among investors, which supports rationality of the average individual investor.
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