Local bias under natural disasters

Haiqiang Chen, Yining Chen and Dongxu Li

International Review of Finance, 2025, vol. 25, issue 1

Abstract: Exploiting account‐level daily stock holding records of over 24,000 retail investors, we show that local investors increase holdings of local stocks more than the nonlocals' in the case of natural disasters. Additional tests suggest that the effect is likely driven by the local investors' information advantage about the intrinsic value of local stocks, navigating them to the underpriced ones and thus achieving superior stock returns. Our study reveals the economic reasoning underlying local biases particularly under natural disasters.

Date: 2025
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