Initial Public Offerings and the Firm Location

The firm geographic location matters in IPOs because investors have a strong preference for newly issued local stocks and provide abnormal demand in local offerings. Using equity holdings data for more than 53,000 households, we show the probability to participate to the stock market and the proportion of the equity wealth is abnormally increasing with the volume of the IPOs inside the investor region. Upon nearly the universe of the 167,515 going public and private domestic manufacturing firms, we provide consistent evidence that the isolated private firms have higher probability to go public, larger IPO underpricing cross-sectional average and volatility, and less pronounced long-run under-performance. Similar but opposite evidence holds for the local concentration of the investor wealth. These effects are economically relevant and robust to local delistings, IPO market timing, agglomeration economies, firm location endogeneity, self-selection bias, and information asymmetries, among others. Findings suggest IPO waves have a strong geographic component, highlight that underwriters significantly under-estimate the local demand component thus leaving unexpected money on the table, and support state-contingent but constant investor propensity for risk

Essays in portfolio choice.

This work seeks to investigate in a realistic way how investment choices are determined by investor characteristics, and in some cases, the effect of these choices on asset prices. In a first piece, I model individual stock purchases and sales in a framework that allows for both independently motivated trades and for trades caused by social influence. I test the model with data on all individual investor transactions in the 20 highest volume stocks in Finland from 1/1995 to 12/2003. I find statistically and economically significant social effects on trading behavior in both individual purchases and sales after controlling for education, income, past return, number of businesses in the area to measure familiarity of investors with firms, and investor population. There is also evidence that socially motivated trades predict returns, over and above the effect of all trades, volume, and past returns. In a second piece co-authored with fellow-graduate student Adair Morse, we find that more patriotic countries have greater equity home bias. In a panel of World Values Surveys covering 53 countries, measures of patriotism are positively related to home bias measures after controlling for transaction barriers, diversification benefits, information and familiarity. Changes in patriotism vary with changes in the home bias. The results are robust to using ISSP measures of patriotism covering 24 countries and within-U.S. data from the Survey of Consumer Finances. Instrumenting patriotism with social variables uncorrelated with economic and political factors confirms that patriotism affects investment. The average country invests $18 to$30 billion more abroad with a one standard deviation drop in patriotism.Ph.D.FinanceSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/126294/2/3238087.pd