Location choice, portfolio choice
Harrison Hong, John R. Eckel Jr. Professor of Financial Economics, Columbia University
Please join us for our upcoming finance seminar. Harrison Hong, John R. Eckel Jr. Professor of Financial Economics, Columbia University, will be presenting.
University of Oxford staff and students are welcome to attend if seats available. If you would like to attend, please contact Marie van Boekel to check availability.
Households hold nondiversified stock portfolios of firms headquartered near their city of residence. The leading explanation assigns a causal role for proximity due to a familiarity bias. Empirical analyses assume households locate randomly, even though they optimally select a city. This selection is important since latent location factors might be correlated with latent demand for local stocks. Building on location choice models from urban economics, we develop an instrumented Heckman (1977)-style model to account for the effect of location choices on portfolio choices. Conservative estimates point to local bias being 60% driven by familiarity and 40% driven by the correlation of these latent factors.