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The Genesis of Home Bias? The Location and Portfolio Choices of Investment Company Start-Ups

Published online by Cambridge University Press:  06 April 2009

Jerry T. Parwada
Jerry T. Parwada
Affiliation:
j.parwada@unsw.edu.au, School of Banking and Finance, University of New South Wales, UNSW Sydney, NSW 2052, Australia.
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Abstract

Fund managers' bias toward geographically proximate securities is a well-researched phenomenon, yet the origins of managers' location choices have received little empirical scrutiny. This paper traces the employment and geographic heritage of 358 entrepreneurial fund managers and analyzes the determinants of where they locate their firms and stock selections. The evidence suggests that start-ups tend to be based close to the origins of their founders and in regions with more investment management firms, banking establishments, and large institutional money managers. New money managers show a strong local bias in their equity holdings, three times the levels previously documented for mutual funds. The propensity to invest closer to home correlates strongly with the presence of sub-advisory opportunities from institutional investors in the vicinity. While home bias levels between managers who relocate with their start-ups and the rest of the entrepreneurs are similar, preferences for stocks that were formally local persist.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 1 , March 2008 , pp. 245 - 266
Copyright
Copyright © School of Business Administration, University of Washington 2008

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