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

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...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2008-03, Vol.43 (1), p.245-266
Main Author: Parwada, Jerry T.
Format: Article
Language:English
Subjects:
Bias
Employment
Entrepreneurs
Financial investments
Financial portfolios
Financial research
Founders
Geographic location
Institutional investments
Investment management companies
Investment strategies
Investment trusts
Money
Money management
Payroll
Portfolio management
Portfolio selection
Scrutiny
Start up firms
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Summary: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.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109000002817