June 27, 2003

Chicago Tribune: Study Says Local Firms Provide Lift

Research by two Department of Finance faculty members -- Zoran Ivkovich and Scott Weisbenner, both assistant professors -- was highlighted in a June 24, 2003, Chicago Tribune story by Marilyn Kennedy Melia.

Ivkovich and Weisbenner studied brokerage accounts of 31,000 households and found that an average investor "generates an additional 3.7 percent per year from local holdings compared to its non-local holdings, suggesting local investors are able to exploit knowledge of where they live." For the purposes of their research, the team defines local as within 250 miles of the investor's primary home. Being so close, investors are able to "secure value relevant information," says Weisbenner, which is not as readily available as research on larger companies.

The faculty members used information from a national brokerage firm for their analysis. Account information was from 1991 through 1996. Local stocks accounted for approximately 30 percent of total assets held.

Writes Melia:

"When we first started the project, I thought we would find that people have a bias for local stocks, and put them in their portfolio simply because they're familiar with those companies," says Weisbenner.

"But what is surprising is that their local investments outperform their non-local ones in a magnitude that is roughly equal to that shown by the professional money managers [in the earlier study]."

The Chicago Tribune article is available to individuals with an online Tribune account. There is no charge for an account.