Abstract
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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 20-37 |
| Number of pages | 18 |
| Journal | Journal of Financial Economics |
| Volume | 90 |
| Issue number | 1 |
| DOIs | |
| State | Published - Oct 2008 |
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Keywords
- Local bias
- Segmented markets
ASJC Scopus subject areas
- Accounting
- Strategy and Management
- Economics and Econometrics
- Finance
Cite this
The only game in town : Stock-price consequences of local bias. / Hong, Harrison; Kubik, Jeffrey David; Stein, Jeremy C.
In: Journal of Financial Economics, Vol. 90, No. 1, 10.2008, p. 20-37.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - The only game in town
T2 - Stock-price consequences of local bias
AU - Hong, Harrison
AU - Kubik, Jeffrey David
AU - Stein, Jeremy C.
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
UR - http://www.scopus.com/inward/record.url?scp=53649109789&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=53649109789&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2007.11.006
DO - 10.1016/j.jfineco.2007.11.006
M3 - Article
VL - 90
SP - 20
EP - 37
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 1
ER -