The only game in town: Stock-price consequences of local bias

Harrison Hong, Jeffrey D. Kubik and Jeremy Stein

Journal of Financial Economics, 2008, vol. 90, issue 1, 20-37

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.

Keywords: Local; bias; Segmented; markets (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (75)

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Related works:
Working Paper: The Only Game in Town: Stock-Price Consequences of Local Bias (2008)
Working Paper: The Only Game in Town: Stock-Price Consequences of Local Bias (2005)
Working Paper: The Only Game in Town: Stock-Price Consequences of Local Bias (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:90:y:2008:i:1:p:20-37

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