Birthplace bias, familiarity and portfolio choice

Abstract

We use high-frequency trading data from individual investors during the period 2012 to 2016 to examine the existence of birthplace bias in China. As we have found, there is a birthplace bias and a local bias in the Chinese stock market and is related to the GDP level of the province, the characteristics of the company, the characteristics of investors, the short-term and long-term state of the market. Meanwhile, when investors move to another province, they maintain their preference for stocks in their birthplace and develop a preference for stocks in their new place of residence. However, these individual investors trade on the basis of familiarity and are unable to achieve excess returns. Thus, the research on proximity bias should not only focus on the existence of proximity bias itself, but also introduce more perspectives for discussion so as to get a more robust conclusion.