Local bias dynamics and the risk adjusted portfolio return

Using data on direct investments of individual investors from 2000 to 2008, this paper shows that investors are persistent in holding local stocks even though they do not earn abnormal return on local biased investments. This preference might be explained by familiarity hypothesis, hedging needs against human capital, passiveness of investors, or indisputable preference of investors. The paper also shows that the individual portfolios with large firms, established firms, highly levered firms, and firms with a dividend payout include more local investments. Finally, females exhibit stronger local bias than males do.