Date of Award

5-7-2017

Degree Type

Dissertation

Degree Name

Executive Doctorate in Business (EDB)

Department

Business

First Advisor

Dr. Vikas Agarwal

Second Advisor

Dr. Conrad S Ciccotello

Third Advisor

Dr. Kevin Mullally

Abstract

I examine local bias in hedge fund portfolio selection, using Section 13-F original and confidential holding filings. Using Coval and Moskowitz (1999) measure, I find that local bias is present among U.S.-based hedge funds. The holdings of funds are on average 20-67 km closer to hedge funds than the market. I also find that size and leverage of a company serve as determinants of local bias, with the preference of hedge funds for smaller and more levered local companies. I suggest an alternative model for assessment of local bias that yields results further supporting the hypothesis of the existence of local bias among hedge funds. I do not find a positive effect of local bias on performance. Moreover, in some periods I find a strong negative effect of local bias both on raw and risk-adjusted returns. I argue that these findings suggest that the origins of local bias should not be looked for in information asymmetry, and rather may be attributed to perceived informational advantage, flight to familiarity, and some endogenous factors of hedge fund locality.

Share

COinS