Location choice, portfolio choice

Ioannis Branikas, Harrison Hong and Jiangmin Xu

Journal of Financial Economics, 2020, vol. 138, issue 1, 74-94

Abstract: Households hold undiversified stock portfolios of firms headquartered near their city of residence. Leading explanations assign a causal role for proximity. The literature neglects that distance is endogenous. Households may locate based on unobservables such as optimism about a city’s economic prospects, which can be correlated with latent local-stock demand. We use location-choice models to account for this selection. We propose as instruments that older households prefer to locate in recreational areas for non-pecuniary reasons. Our analysis based on a widely used household data set yields significantly smaller estimates for proximity in determining portfolio choice compared to those in the literature.

Keywords: Location choice; Portfolio choice; Household finance; Local bias; Selection correction (search for similar items in EconPapers)
JEL-codes: D1 G02 G1 G11 G12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:138:y:2020:i:1:p:74-94

DOI: 10.1016/j.jfineco.2019.10.010

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