The Birthplace Bias of Individual Investors

• 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.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

Nyckelord

Birthplace Bias

Local Bias

Individual Investors

Information Asymmetry

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