No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice
2012, Review of Financial Studies
Noah Stoffman, Veronika Krepeley Pool, Scott Yonker
We show that familiarity affects the portfolio decisions of mutual fund managers. Controlling for fund location, funds overweight stocks from their managers' home states by 12% compared to their peers. In team-managed funds, home-state overweighting is 37% larger than the fund location effect. The home-state bias is stronger if the manager is inexperienced, is resource-constrained, or spent more time in his home state. Home-state stocks do not outperform other holdings, confrming that home-state investments are not informed. The overweighting also leads to excessively risky portfolios.
Stoffman, Noah, Veronika Pool and Scott Yonker (2012), "No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice," Review of Financial Studies, 25(8).