Chapter

Biased Investors: Proximity in Secondary Markets

Dariusz Wójcik

in The Global Stock Market

Published in print May 2011 | ISBN: 9780199592180
Published online September 2011 | e-ISBN: 9780191729089 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199592180.003.0004
Biased Investors: Proximity in Secondary Markets

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In Chapter 4, the focus of the book switches from primary to secondary markets. The main argument is that proximity between investors and issuers plays an important part in explaining the behaviour and performance of investors in the trading of stocks. The chapter combines insights from research on home and local bias in financial economics, showing that investors overweigh local and domestic stocks in their portfolios, with economic geographical research on proximity and knowledge in financial markets. There are many types of proximity that matter in secondary stock markets: physical, cognitive, social, organizational, and institutional. Their implications are discussed for investment industry, corporate sectors, communities, and policymakers. The chapter finishes by discussing the limits to the role of proximity, determined mainly by the demand for liquidity and global knowledge.

Keywords: secondary market; investors; home bias; local bias; investment returns; proximity; liquidity; global knowledge

Chapter.  8359 words.  Illustrated.

Subjects: Financial Institutions and Services

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