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Home bias at home: Local equity preference in domestic portfolios (1999)

by J D Coval, T J Moskowitz
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Investor psychology and asset pricing

by David Hirshleifer , 2001
"... The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for understa ..."
Abstract - Cited by 420 (27 self) - Add to MetaCart
The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for understanding decision biases, evaluates the a priori arguments and the capital market evidence bearing on the importance of investor psychology for security prices, and reviews recent models.

Does distance still matter? The information revolution in small business lending

by Mitchell A. Petersen, Raghuram G. Rajan - JOURNAL OF FINANCE , 2002
"... The distance between small firms and their lenders is increasing, and they are communicating in more impersonal ways. After documenting these systematic changes, we demonstrate they do not arise from small firms locating differently, consolidation in the banking industry, or biases in the sample. In ..."
Abstract - Cited by 338 (10 self) - Add to MetaCart
The distance between small firms and their lenders is increasing, and they are communicating in more impersonal ways. After documenting these systematic changes, we demonstrate they do not arise from small firms locating differently, consolidation in the banking industry, or biases in the sample. Instead, improvements in lender productivity appear to explain our findings. We also find distant firms no longer have to be the highest quality credits, indicating they have greater access to credit. The evidence indicates there has been substantial development of the financial sector, even in areas such as small business lending.

Familiarity Breeds Investment

by Gur Huberman, Maya Bar-hillel, Joshua Coval, Frank Edwards, Joseph Even, William Gentry, Larry Glosten, Sean Hanna, Laurie Hodrick, Ariel Rubinstein, Richard Thaler, William Schwert, Eldar Shafir, Gur Huberman - Review of Financial Studies, XIV
"... and Jason Zweig for useful conversations and to Lipper Analytical Services for data on Texas municipal bond funds. Familiarity Breeds Investment by ..."
Abstract - Cited by 331 (10 self) - Add to MetaCart
and Jason Zweig for useful conversations and to Lipper Analytical Services for data on Texas municipal bond funds. Familiarity Breeds Investment by

The determinants of cross-border equity flows

by Richard Portes, Hélène Rey, Shan Jin Wei, Alan Winters - Journal of International Economics , 2005
"... We explore a new panel data set on bilateral gross cross-border equity flows between 14 countries, 1989-96. We show that a “gravity ” model explains international transactions in financial assets at least as well as goods trade transactions. Gross transaction flows depend on market size in both sour ..."
Abstract - Cited by 267 (9 self) - Add to MetaCart
We explore a new panel data set on bilateral gross cross-border equity flows between 14 countries, 1989-96. We show that a “gravity ” model explains international transactions in financial assets at least as well as goods trade transactions. Gross transaction flows depend on market size in both source and destination country as well as trading costs, in which both information and the transaction technology play a role. Distance proxies some information costs, and other variables explicitly represent information transmission, an information asymmetry between domestic and foreign investors, and the efficiency of transactions. The remarkably good results have strong implications for theories of asset trade. We find that the geography of information is the main determinant of the pattern of international transactions, while there is weak support in our data for the diversification motive, once we control for the informational friction. We strengthen our conclusions by investigating- in another data set- the ability of our information variables to explain transactions in classes of assets with different informational content (corporate bonds, equities and government bonds). Finally, we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings.

Information and the cost of capital

by David Easley - The Journal of Finance , 2004
"... and ..."
Abstract - Cited by 257 (3 self) - Add to MetaCart
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A SURVEY OF BEHAVIORAL FINANCE

by Nicholas Barberis, Richard Thaler , 2003
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Abstract - Cited by 248 (7 self) - Add to MetaCart
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The Geography of Investment: Informed Trading and Asset Prices

by Joshua D. Coval, Tobias J. Moskowitz, Mark Grinblatt, Gur Huberman, Andrew Lo, John Mcconnell, Lubos Pastor - Journal of Political Economy
"... Applying a geographic lens to mutual fund performance, this study finds that fund managers earn substantial abnormal returns in nearby investments. These returns are particularly strong among funds that are small and old, focus on few holdings, and operate out of remote areas. Furthermore, we find t ..."
Abstract - Cited by 221 (3 self) - Add to MetaCart
Applying a geographic lens to mutual fund performance, this study finds that fund managers earn substantial abnormal returns in nearby investments. These returns are particularly strong among funds that are small and old, focus on few holdings, and operate out of remote areas. Furthermore, we find that while the average fund exhibits only a modest bias toward local stocks, certain funds strongly bias their holdings locally and exhibit even greater local performance. Finally, we demonstrate that the extent to which a firm is held by nearby investors is positively related to its future expected return. Our results suggest that investors trade local securities at an informational advan-tage and point toward a link between such trading and asset prices.

Information Costs And Home Bias: An Analysis Of U.s. Holdings Of Foreign . . .

by Alan G. Ahearne, Alan G. Ahearne, William L. Griever, William L. Griever, Francis E. Warnock, Francis E. Warnock - Journal of International Economics , 2000
"... : We aim to provide insight into the observed equity home bias phenomenon by analyzing the determinants of U.S. holdings of equities across a wide range of countries. In particular, we explore the role of information costs in determining the country distribution of U.S. investors' equity holdin ..."
Abstract - Cited by 171 (22 self) - Add to MetaCart
: We aim to provide insight into the observed equity home bias phenomenon by analyzing the determinants of U.S. holdings of equities across a wide range of countries. In particular, we explore the role of information costs in determining the country distribution of U.S. investors' equity holdings using a comprehensive new data set on U.S. ownership of foreign stocks. We find that U.S. holdings of a country's equities are positively related to the share of that country's stock market that is listed on U.S. exchanges, even after controlling for capital controls, trade links, transaction costs, and historical risk-adjusted returns. We attribute this finding to the fact that foreign firms that list on U.S. exchanges are obliged to provide standardized, credible financial information, thereby reducing information costs incurred by U.S. investors. This obligation stems from U.S. investor protection regulations, which include stringent disclosure requirements, reconciliation of financial stat...

Capital Account Liberalization: Theory, Evidence, and Speculation

by Peter Blair Henry , 2006
"... ..."
Abstract - Cited by 161 (2 self) - Add to MetaCart
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Local does as local is: information content of the geography of individual investors common stock investments

by Zoran Ivkovic ́, Scott Weisbenner - Journal of Finance 2005
"... Using data on the investments a large number of individual investors made through a discount broker from 1991 to 1996, we find that households exhibit a strong preference for local investments. We test whether this locality bias stems from information or from simple familiarity. The average househol ..."
Abstract - Cited by 152 (12 self) - Add to MetaCart
Using data on the investments a large number of individual investors made through a discount broker from 1991 to 1996, we find that households exhibit a strong preference for local investments. We test whether this locality bias stems from information or from simple familiarity. The average household generates an additional annualized return of 3.2 % from its local holdings relative to its nonlocal holdings, suggesting that local investors can exploit local knowledge. Excess returns to investing locally are even larger among stocks not in the S&P 500 index (firms for which information asymmetries between local and nonlocal investors may be largest). Behold, the fool saith, “Put not all thine eggs in the one basket”—which is but a manner of saying, “Scatter your money and your attention”; but the wise man saith, “Put all your eggs in one basket and—watch that basket.” Mark Twain, 1894 THE FINANCE LITERATURE HAS YIELDED a large number of in-depth studies concern-ing the investments managed by professional money managers, yet historically,
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