The Only Game in Town: Stock-Price Consequences of Local Bias
- Topics:
- Investment and Capital Markets
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Overview: 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. It tests this proposition using data on U.S. Census regions and states, and finds clear-cut support for it. Most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita. This effect is especially pronounced for smaller, less visible firms, where the impact of location on stock prices is roughly 12 percent.
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Format: PDF | Size: 366KB | Date: Jun 2005 | Pages: 51
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