Location Choice, Portfolio Choice

Ioannis Branikas, Harrison Hong and Jiangmin Xu

No 23040, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Households hold nondiversified stock portfolios of firms headquartered near their city of residence. Explanations assign a causal role for proximity, either in generating an informational advantage or a familiarity bias. Empirical analyses assume households locate randomly, even though they optimally select a city. This selection is important since latent location factors might be correlated with latent demand for local stocks. Building on location choice models from urban economics, we develop a Heckman (1977)-style model to account for the effect of location choices on portfolio choices. Adjusting for selection significantly reduces local bias and the performance of local stock picks.

JEL-codes: G02 G11 R2 R22 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-ure
Note: AP
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Citations: View citations in EconPapers (2)

Published as Ioannis Branikas & Harrison Hong & Jiangmin Xu, 2020. "Location Choice, Portfolio Choice," Journal of Financial Economics, .

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