TY  - JOUR
AU  - Hong,Harrison
AU  - Kubik,Jeffrey D.
AU  - Stein,Jeremy C.
TI  - The Only Game in Town: Stock-Price Consequences of Local Bias
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11488
PY  - 2005
Y2  - July 2005
UR  - http://www.nber.org/papers/w11488
L1  - http://www.nber.org/papers/w11488.pdf
N1  - Author contact info:
Harrison Hong
Department of Economics
Princeton University
26 Prospect Avenue
Princeton, NJ 08540
Tel: 609/258-0259
Fax: 609/258-0771
E-Mail: hhong@princeton.edu

Jeffrey Kubik
Maxwell School
Syracuse University
426 Eggers Hall
Syracuse, NY 13244
E-Mail: jdkubik@maxwell.syr.edu

Jeremy C. Stein
Federal Reserve Board of Governors
20th Street and Constitution Ave., N.W.
Washington, DC 20551
E-Mail: jeremy.c.stein@frb.gov
AB  - 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.
ER  -