Trust and Local Bias
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
Related Research Unit(s)
|Journal / Publication||Journal of Financial and Quantitative Analysis|
|Online published||29 Oct 2019|
|Publication status||Published - Nov 2020|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-85083375751&origin=recordpage|
In this article, we examine 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.