The Only Game in Town: Stock-Price Consequences of Local Bias / Harrison Hong, Jeffrey D. Kubik, Jeremy C. Stein.

Format:

Book

Author/Creator:

Hong, Harrison.

Contributor:

National Bureau of Economic Research.

Kubik, Jeffrey D.

Stein, Jeremy C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11488.

NBER working paper series no. w11488

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Only Game in Town

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

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. We test this proposition using data on U.S. Census regions and states, and find 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. 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. This effect is especially pronounced for smaller, less visible firms, where the impact of location on stock prices is roughly 12 percent.

Notes:

Print version record

July 2005.