Quotation Chandler, Lutz, Rzeznik, Aleksandra, Sand, Ben. 2016. Local Economic Conditions and Local Equity Preferences: Evidence from Mutual Funds during the U.S. Housing Boom and Bust.


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Abstract

This paper examines the impact of local economic conditions on mutual fund preferences for geographically proximate stocks and consequently fund rerformance. Specificcally, we demonstrate that mutual funds favouritism towards firms located within close geographic proximity varies with local housing price shocks. A decrease in local house prices is strongly associated with an increase in mutual fund home bias and results in a portfolio adjustment towards safer and higher quality holdings. This previously undocumented behavioral bias is of first order importance, as the shift in mutual fund preferences towards local stocks induced by deterioration in local economic conditions is associated with mutual fund underperformance: a one percentage point increase in the fraction of local holdings causes a decrease in a fund's characteristic-adjusted 3-month future return by 35.3 bps.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Local Economic Conditions and Local Equity Preferences: Evidence from Mutual Funds during the U.S. Housing Boom and Bust
Year 2016
URL https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2912419
JEL F30, G15, G23

Associations

People
Rzeznik, Aleksandra (Former researcher)
External
Chandler, Lutz (Copenhagen Business School, Denmark)
Sand, Ben (York University, Canada)
Organization
Institute for Finance, Banking and Insurance IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5361 Financial management (Details)
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