Individual Investors and Local Bias

The paper tests whether individuals have value-relevant information about stocks (where local is de ned as being headquartered near where an investor lives). Our methodology uses two types of calendar-time portfolios|one based on holdings and one based on transactions. Portfolios of holdings do not generate abnormal performance (alphas are zero). When studying transactions, purchases of stocks signi cantly underperform sales of stocks. The underperformance remains when focusing on stocks with potentially high-levels of information asymmetries. We conclude that individuals do not help incorporate information into stock prices. Our conclusions directly contradict existing studies.