TY - JOUR
T1 - The only game in town
T2 - Stock-price consequences of local bias
AU - Hong, Harrison
AU - Kubik, Jeffrey D.
AU - Stein, Jeremy C.
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/10
Y1 - 2008/10
N2 - Theory suggests that, in the presence of local bias, the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region. Using data on U.S. states and Census regions, we find clear-cut support for this proposition. Most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita. Regions with low population density-e.g., the Deep South-are home to relatively few firms per capita, which leads to higher stock prices via an "only-game-in-town" effect.
AB - Theory suggests that, in the presence of local bias, the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region. Using data on U.S. states and Census regions, we find clear-cut support for this proposition. Most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita. Regions with low population density-e.g., the Deep South-are home to relatively few firms per capita, which leads to higher stock prices via an "only-game-in-town" effect.
KW - Local bias
KW - Segmented markets
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U2 - 10.1016/j.jfineco.2007.11.006
DO - 10.1016/j.jfineco.2007.11.006
M3 - Article
AN - SCOPUS:53649109789
VL - 90
SP - 20
EP - 37
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 1
ER -