No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice

Pool, Veronika Krepely; Stoffman, Noah; Yonker, Scott E.

doi:10.1093/rfs/hhs075

Cited by 298 publications

(101 citation statements)

References 38 publications

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“…We also consider the presence of foreign managers and the share of assets under management they are in charge of. In line with a strong stream of literature (Chan et al, 2005;McQueen and Stenkrona, 2012;Pool and al., 2012), fund managers are prone to choose domestic bonds, since they know their market better (familiarity theory) and are more confident in their choices (information theory). Therefore, we expect pension funds where foreign intermediaries manage a larger share of the investment portfolio to have a lower degree of domestic sovereign exposure.…”

Section: Ijbmccsenetorgsupporting

confidence: 64%

“…Tesar and Werner (1995), Coval and Moskovitz (1999), Campbell and Kraussel (2007) and Dziuda and Mondria (2012)) demonstrate that asymmetric information is the main ingredient of domestic bias. Asymmetric information produces the familiarity theory (Chan et al, 2005;McQueen and Stenkrona, 2012;Pool et al, 2012), the optimism or overconfidence theory (Suh, 2005) and the geographic proximity theory (Campell and Kraüssl, 2007;Giofrè, 2013;Coval and Moskovitz, 1999), which explain why investors consistently favour domestic securities.…”

Section: Introductionmentioning

confidence: 99%

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Italian Pension Funds Struggling with Domestic Sovereign Risk

Vincentiis¹,

Isaia²,

Zocchi³

2018

IJBM

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The paper investigates the determinants of Italian pension funds' exposure to the domestic sovereign bonds through a panel analysis, over the time-period 2008-2014, on a sample of 70 funds and 230 investment lines. We investigate the drivers on sovereign home bias along two main explicative arrows: the familiarity theory, and the opportunity set theory. Results indicate that both factors are significant. However, from a quantitative point of view, the main determinant is the presence of restrictions in the investment mandate. The existence of a minimum guaranteed return increases on average by 11 per cent the weight of the Italian sovereign bonds on the European sovereign portfolio, while extending the investment spectrum outside Europe determines a decrease of 4.5 per cent on average. This finding suggests that exposures to the domestic-sovereign risk of Italian pension funds would probably reduce after specific mandate restrictions have loosened. Since sovereign home bias translates into concentration risk, it may weaken the soundness of the private pension pillar in case the Italian T-bonds suffer from a significant price reduction. Regulators should pay close attention to this issue to enhance the stability of the Italian pension fund industry, considering that such a large sovereign home bias could simultaneously undermine the private and public pension payments.

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Section: Ijbmccsenetorgsupporting

confidence: 64%

Section: Introductionmentioning

confidence: 99%

Italian Pension Funds Struggling with Domestic Sovereign Risk

Vincentiis¹,

Isaia²,

Zocchi³

2018

IJBM

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“…However, institutional investors still exhibit some degree of familiarity preferences. Controlling for fund location, Pool, Stoffman, and Yonker [] show that mutual fund managers tend to overweight stocks from their home states and that these stockholdings do not outperform other holdings.…”

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confidence: 99%

Mobile Communication and Local Information Flow: Evidence from Distracted Driving Laws

Brown

Stice

White

2015

J of Accounting Research

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We examine the influence of mobile communication on local information flow and local investor activity using the enforcement of state-wide distracted driving restrictions, which are exogenous events that constrain mobile communication while driving. By restricting mobile communication across a potentially sizable set of local individuals, these restrictions could inhibit local information flow and in turn, the market activity of stocks headquartered in enforcement states. We first document a decline in Google search activity for local stocks when restrictions take effect, suggesting that constraints on mobile communication significantly affect individuals' information search activity. We further find significant declines in local trading volume when restrictions are enforced. This drop in liquidity is 1) attenuated when laws provide substitutive means of mobile communication and 2) magnified when locals have long car commutes and when their daily commutes overlap with regular exchange hours. Moreover, trading volume suffers the most for local stocks with lower institutional ownership, less analyst coverage, and more intangible information. Additional analyses show lower intraday volume during local commute times when mobile connectivity is constrained. Together, our results suggest that local information and local investors matter in stock markets and that mobile communication is an important mechanism through which these elements operate to affect liquidity and price discovery. This article is protected by copyright. All rights reserved.3 mutual fund managers tend to overweight stocks from their home states and that these stockholdings do not outperform other holdings. 8 Other studies also provide evidence in support of the information-based hypothesis. For instance, Pirinsky and Wang [2006] find evidence of strong return comovement among stocks headquartered in the same geographical This article is protected by copyright. All rights reserved. 12 Recent research has begun to examine the mechanisms through which local information diffuses. Prior studies document that social interaction and word-of-mouth communication among individuals play important roles in the diffusion of local stock information and in individuals' decision to participate in stock markets (Hong, Kubik, and Stein [2004], Ivković and Weisbenner [2007], Shive [2010]). Local media sources and local equity analysts also serve as conduits for the flow of local stock information. For instance, Engelberg and Parsons [2011] find that local newspaper coverage of earnings announcements stimulates local trading. Using exogenous newspaper strikes in several countries, Peress [2014] finds lower share turnover and higher stock return volatility and dispersion in the country's stock market during strike days. 9 Regarding equity analysts, Malloy [2005] finds that local analysts provide more accurate earnings forecasts and stock recommendations for local firms, while Bae, Stulz, and Tan [2008] find that local domestic analysts make more precise forecasts for ...

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“…In adverse market conditions, however, the lower efficiency of decision-making of teams is costly. Chen, Hong, Huang, and Kubik (2004), Cici (2012), andPool, Stoffman, andYonker (2012) show that teams have a tendency to make inefficient investment decisions. Our results indicate that these inefficiencies primarily arise during adverse market conditions.…”

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confidence: 99%

Pitfalls and perils of financial innovation: The use of CDS by corporate bond funds

Adam

Guettler

2015

Journal of Banking & Finance

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No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice

Cited by 298 publications

References 38 publications

Italian Pension Funds Struggling with Domestic Sovereign Risk

Italian Pension Funds Struggling with Domestic Sovereign Risk

Mobile Communication and Local Information Flow: Evidence from Distracted Driving Laws

Pitfalls and perils of financial innovation: The use of CDS by corporate bond funds

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