Game Hoarding in Europe: Stock-Price Consequences of Local Bias?
37 Pages Posted: 22 Oct 2010 Last revised: 1 Jun 2012
Date Written: May 26, 2010
Abstract
Hong, Kubik and Stein (JFE 2008) find that the price of a stock in the US is decreasing in the ratio of the aggregate book value of listed firms in a region to the aggregate personal income in the same region (“RATIO”), an “only-game-in-town” effect. We first replicate the HKS (2008) study using European data and find an opposite effect, a “game-hoarding” effect. We then investigate the underlying factors of RATIO and find that after controlling for differences in origin of law, investor rights, corruption and Euro adoption, neither a game-hoarding effect nor an only-game-in-town effect is strongly supported in the European case. The results are important in understanding the concept of local bias in a cross-country framework.
Keywords: Local bias, Only-game-in-town effect, Game-hoarding effect, Europe
JEL Classification: G11, G12
Suggested Citation: Suggested Citation
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