Trust and local bias

This paper examines the effect of social trust on local bias. Our evidence suggests that institutional investors located in high-trust regions of the United States exhibit lower local bias. Moreover, we find that high-trust investors are better diversified, suggesting that trust helps accomplish gre...

Full description

Saved in:
Bibliographic Details
Main Authors: WEI, Chi Shen, ZHANG, Lei
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2019
Subjects:
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/6529
https://ink.library.smu.edu.sg/context/lkcsb_research/article/7528/viewcontent/Trust_bias_sv.pdf
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Singapore Management University
Language: English
Description
Summary:This paper examines the effect of social trust on local bias. Our evidence suggests that institutional investors located in high-trust regions of the United States exhibit lower local bias. Moreover, we find that high-trust investors are better diversified, suggesting that trust helps accomplish greater diversification. The results are not due to firm, demographic, or local economic characteristics. Additional analysis reveals that the documented informational advantage in local holdings exists only in low-trust regions. We show that this finding is consistent with a trust explanation.