Where the Heart Is: Information Production and the Home Bias

Published Online:https://doi.org/10.1287/mnsc.2019.3438

References

  • Adelino M, Cunha I, Ferreira M (2017) The economic effects of public financing: Evidence from municipal bond ratings recalibration. Rev. Financial Stud. 30(9):3223–3268.CrossrefGoogle Scholar
  • Almeida H, Cunha I, Ferreira M, Restrepo F (2017) The real effects of credit ratings: The sovereign ceiling channel. J. Finance 72(1):249–290.CrossrefGoogle Scholar
  • Alp A (2013) Structural shifts in credit ratings. J. Finance 68(6):2435–2470.CrossrefGoogle Scholar
  • Agarwal S, Chen VYS, Zhang W (2016) The information value of credit rating action reports: A textual analysis. Management Sci. 62(8):2218–2240.LinkGoogle Scholar
  • Ang A, Bhansali V, Xing Y (2014) The muni bond spread: Credit, liquidity, and tax. Research Paper 14-37, Columbia Business School, New York.Google Scholar
  • Ang A, Green RC, Xing Y (2017) Advance refunding of municipal bonds. J. Finance 72(4):1645–1682.CrossrefGoogle Scholar
  • Bae K, Stulz RM, Tan H (2008) Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts. J. Financial Econom. 88(3):581–606.CrossrefGoogle Scholar
  • Baghai R, Servaes H, Tamayo A (2014) Have rating agencies become more conservative? Implications for capital structure and debt pricing. J. Finance 69(5):1961–2005.CrossrefGoogle Scholar
  • Bar-Isaac H, Shapiro J (2013) Ratings quality over the business cycle. J. Financial Econom. 108(1):62–78.CrossrefGoogle Scholar
  • Becker B, Milbourn T (2011) How did increased competition affect credit ratings? J. Financial Econom. 101(3):493–514.CrossrefGoogle Scholar
  • Behr P, Kisgen D, Taillard J (2017) Did government regulations lead to inflated ratings? Management Sci. 64(3):1034–1054.LinkGoogle Scholar
  • Bergstresser D, Cohen R, Shenai S (2010) Financial guarantors and the 2007–2009 credit crisis. Preprint, submitted November 21, https://ssrn.com/abstract=1571627.Google Scholar
  • Bergstresser D, Cohen R, Shenai S (2015) Skin in the game: The performance of insured and uninsured municipal debt. Working paper, International Business School, Brandeis University, Waltham, MA.Google Scholar
  • Bolton P, Freixas X, Shapiro J (2012) The credit ratings game. J. Finance 67(1):85–112.CrossrefGoogle Scholar
  • Bongaerts D (2013) Can alternative business models discipline credit rating agencies? Working paper, Erasmus University, Rotterdam, Netherlands.Google Scholar
  • Butler AW (2008) Distance still matters: Evidence from municipal bond underwriting. Rev. Financial Stud. 21(2):763–784.CrossrefGoogle Scholar
  • Butler AW, Fauver L, Mortal S (2009) Corruption, political connections, and municipal finance. Rev. Financial Stud. 22(7):2673–2705.CrossrefGoogle Scholar
  • Bruno V, Cornaggia J, Cornaggia K (2016) Does regulatory certification affect the information content of credit ratings? Management Sci. 62(6):1578–1597.LinkGoogle Scholar
  • Cestau D, Green R, Schürhoff N (2013) Tax-subsidized underpricing: The market for Build America Bonds. J. Monetary Econom. 60(5):593–608.CrossrefGoogle Scholar
  • Chalmers JMR (1998) Default risk cannot explain the muni puzzle: Evidence from U.S. government secured municipal bonds. Rev. Financial Stud. 11(2):281–308.CrossrefGoogle Scholar
  • Chan K, Covrig V, Ng L (2005) What determines the domestic bias and foreign bias? Evidence from mutual fund equity allocations worldwide. J. Finance 60(3):1495–1534.CrossrefGoogle Scholar
  • Chen L, Lesmond DA, Wei J (2007) Corporate yield spreads and bond liquidity. J. Finance 62(1):119–149.CrossrefGoogle Scholar
  • Cohen L, Frazzini A, Malloy C (2008) The small world of investing: Board connections and mutual fund returns. J. Political Econom. 116:951–979.CrossrefGoogle Scholar
  • Cornaggia J, Cornaggia KJ (2013) Estimating the costs of issuer-paid credit ratings. Rev. Financial Stud. 26(10):2229–2269.CrossrefGoogle Scholar
  • Cornaggia J, Cornaggia K, Hund J (2017a) Credit ratings across asset classes: A long-term perspective. Rev. Finance 21(2):465–509.CrossrefGoogle Scholar
  • Cornaggia J, Cornaggia K, Israelsen R (2017b) Credit ratings and the cost of municipal financing. Rev. Financial Stud. 31(6):2038–2079.CrossrefGoogle Scholar
  • Cornaggia J, Cornaggia K, Xia H (2016) Revolving doors on Wall Street. J. Financial Econom. 120(2):400–419.CrossrefGoogle Scholar
  • Cornaggia K, Hund J, Nguyen G (2018) Investor attention and municipal bond returns. Working paper, Pennsylvania State University, University Park.Google Scholar
  • Coval JD, Moskowitz TJ (1999) Home bias at home: Local equity preference in domestic portfolios. J. Finance 54:2045–2073.CrossrefGoogle Scholar
  • Coval JD, Moskowitz TJ (2001) The geography of investment: Informed trading and asset prices. J. Political Econom. 109(4):811–841.CrossrefGoogle Scholar
  • Cuny C (2016) Voluntary disclosure incentives: Evidence from the municipal bond market. J. Accounting Econom. 62(1):87–102.Google Scholar
  • Dahl MS, Sorenson O (2012) Home sweet home: Entrepreneurs’ location choices and the performance of their ventures. Management Sci. 58(6):1059–1071.LinkGoogle Scholar
  • Dalsgaard J, Giese C, Hirth S (2014) Is there a home bias in sovereign ratings? Working paper, Aarhus University, Aarhus, Denmark.Google Scholar
  • Ellul A, Jotikasthira C, Lundblad C (2011) Regulatory pressure and fire sales in the corporate bond markets. J. Financial Econom. 101(3):596–620.CrossrefGoogle Scholar
  • Flynn S, Ghent A (2017) Competition and credit ratings after the fall. Management Sci. 64(4):1672–1692.LinkGoogle Scholar
  • Fracassi C, Petry S, Tate G (2016) Does rating analyst subjectivity affect corporate debt pricing. J. Financial Econom. 120(3):514–538.CrossrefGoogle Scholar
  • French KR, Poterba JM (1991) Investor diversification and international equity markets. Amer. Econom. Rev. 81(2):222–226.Google Scholar
  • Fuchs A, Gehring K (2017) The home bias in sovereign ratings. J. Eur. Econom. Assoc. 15(6):1386–1423.CrossrefGoogle Scholar
  • Gao P, Lee C, Murphy D (2020) Financing dies in darkness? The impact of newspaper closures on public finance. J. Financial Econom. 135(2):445–467.CrossrefGoogle Scholar
  • Ghent A, Torous W, Valkanov R (2019) Complexity in structured finance. Rev. Econom. Stud. 86(2):694–722.CrossrefGoogle Scholar
  • Giannetti M, Laeven L (2012a) Flight home, flight abroad, and international credit cycles. Amer. Econom. Rev. 102(3):219–224.CrossrefGoogle Scholar
  • Giannetti M, Laeven L (2012b) The flight home effect: Evidence from the syndicated loan market during financial crises. J. Financial Econom. 104(1):23–43.CrossrefGoogle Scholar
  • Giannetti M, Laeven L (2016) Local ownership, crises, and asset prices: Evidence from US mutual funds. Rev. Finance 20(3):957–978.CrossrefGoogle Scholar
  • Graham JR, Harvey CR, Huang H (2009) Investor competence, trading frequency, and home bias. Management Sci. 55(7):1094–1106.LinkGoogle Scholar
  • Green RC (1993) A simple model of the taxable and tax-exempt yield curves. Rev. Financial Stud. 6:233–264.CrossrefGoogle Scholar
  • Green R, Hollifield B, Schurhoff N (2007) Dealer intermediation and price behavior in the aftermarket for new bond issues. J. Financial Econom. 86(3):643–682.CrossrefGoogle Scholar
  • Green R, Li D, Schurhoff N (2010) Price discovery in illiquid markets: Do financial asset prices rise faster than they fall? J. Finance 65(6):1669–1702.CrossrefGoogle Scholar
  • Griffin JM, Tang D (2012) Did subjectivity play a role in CDO credit ratings? J. Finance 67(4):1293–1328.CrossrefGoogle Scholar
  • Griffin JM, Nickerson J, Tang DY (2013) Rating shopping or catering? An examination of the response to competitive pressure for CDO ratings. Rev. Financial Stud. 26(9):2270–2310.CrossrefGoogle Scholar
  • Harrington JR, Gelfand MJ (2014) Tightness–looseness across the 50 United States. Proc. Natl. Acad. Sci. USA 111(2):7990–7995.CrossrefGoogle Scholar
  • Harris L, Piwowar M (2006) Secondary trading costs in the municipal bond market. J. Financial Econom. 61(3):1361–1397.Google Scholar
  • He J, Qian J, Strahan PE (2012) Are all ratings created equal? The impact of issuer size on the pricing of mortgage-backed securities. J. Finance 67(6):2097–2137.CrossrefGoogle Scholar
  • Hong H, Kostovetsky L (2012) Red and blue investing: Values and finance. J. Financial Econom. 103(1):1–19.CrossrefGoogle Scholar
  • Hong H, Kubik JD, Stein JC (2005) Thy neighbor’s portfolio: Word-of-mouth effects in the holdings and trades of money managers. J. Finance 60(6):2801–2824.CrossrefGoogle Scholar
  • Ingram RW, Brooks LE, Copeland RM (1983) The information content of municipal bond rating changes: A note. J. Finance 38(3):997–1003.CrossrefGoogle Scholar
  • Ivković Z, Weisbenner S (2005) Local does as local is: Information content of the geography of individual investors’ common stock investments. J. Finance 60(1):267–306.CrossrefGoogle Scholar
  • Jiang JX, Stanford M, Yuan X (2012) Does it matter who pays for bond ratings? Historical evidence. J. Financial Econom. 105(3):607–621.CrossrefGoogle Scholar
  • Kang J, Stulz RM (1997) Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan. J. Financial Econom. 46(1):3–28.CrossrefGoogle Scholar
  • Kisgen DJ, Strahan PE (2010) Do regulations based on credit ratings affect a firm’s cost of capital? Rev. Financial Stud. 23(12):4324–4347.CrossrefGoogle Scholar
  • Lin M, Viswanathan S (2015) Home bias in online investments: An empirical study of an online crowdfunding market. Management Sci. 62(5):1393–1414.LinkGoogle Scholar
  • Liu G (2012) Municipal bond insurance premium, credit rating, and underlying credit risk. Public Budgeting Finance 32(1):128–156.Google Scholar
  • Malloy CJ (2005) The geography of equity analysis. J. Finance 60(2):719–755.CrossrefGoogle Scholar
  • Malmendier U, Nagel S (2011) Depression babies: Do macroeconomic experiences affect risk-taking? Quart. J. Econom. 126(1):373–416.CrossrefGoogle Scholar
  • Malmendier U, Nagel S (2016) Learning from inflation experiences. Quart. J. Econom. 131(1):53–87.CrossrefGoogle Scholar
  • Manso G (2013) Feedback effects of credit ratings. J. Financial Econom. 109(2):535–548.CrossrefGoogle Scholar
  • Morewedge CK (2012) It was a must unusual time: How memory bias engenders nostalgic preferences. J. Behav. Decision Making 26(4):319–326.CrossrefGoogle Scholar
  • Nanda V, Singh R (2004) Bond insurance: What is special about munis? J. Finance 59(5):2253–2279.CrossrefGoogle Scholar
  • Opp C, Opp M, Harris M (2013) Rating agencies in the face of regulation. J. Financial Econom. 108(1):46–61.CrossrefGoogle Scholar
  • Parwada JT (2008) The genesis of home bias? The location and portfolio choices of investment company start-ups. J. Financial Quant. Anal. 43(1):245–266.CrossrefGoogle Scholar
  • Pool VK, Stoffman N, Yonker SE (2012) No place like home: Familiarity in mutual fund manager portfolio choice. Rev. Financial Stud. 25(8):2563–2599.CrossrefGoogle Scholar
  • Ramakrishnan RT, Thakor AV (1984) Information reliability and a theory of financial intermediation. Rev. Econom. Stud. 51(3):415–432.CrossrefGoogle Scholar
  • Reck JL, Wilson ER (2006) Information transparency and pricing in the municipal bond secondary market. J. Accounting Public Policy 25(1):1–31.CrossrefGoogle Scholar
  • Sangiorgi F, Spatt C (2017) Opacity, credit rating shopping, and bias. Management Sci. 63(12):4016–4036.LinkGoogle Scholar
  • Seasholes MS, Zhu N (2010) Individual investors and local bias. J. Finance 65(5):1987–2010.CrossrefGoogle Scholar
  • Schultz P (2012) The market for new issues of municipal bonds: The roles of transparency and limited access to retail investors. J. Financial Econom. 106(3):492–512.CrossrefGoogle Scholar
  • Schwert M (2017) Municipal bond liquidity and default risk. J. Finance 72(4):1683–1722.CrossrefGoogle Scholar
  • Sirri ER (2014) Report on secondary market trading in the municipal securities market. Report, Municipal Securities Rulemaking Board, Alexandria, VA.Google Scholar
  • Skreta V, Veldkamp L (2009) Ratings shopping and asset complexity: A theory of ratings inflation. J. Monetary Econom. 56(5):678–695.CrossrefGoogle Scholar
  • Strobl G, Xia H (2012) The issuer-pays rating model and ratings inflation: Evidence from corporate credit ratings. Preprint, submitted September 22, https://ssrn.com/abstract=2002186.Google Scholar
  • Tesar LL, Werner I (1995) Home bias and high turnover. J. Internat. Money Finance 14(4):467–492.CrossrefGoogle Scholar
  • Trzcinka C (1982) The pricing of tax-exempt bonds and the miller hypothesis. J. Finance 37(4):907–923.CrossrefGoogle Scholar
  • Vandello JA, Cohen D (1999) Patterns of individualism and collectivism across the United States. J. Personality Soc. Psych. 77(2):279–292.CrossrefGoogle Scholar
  • Xia H (2014) Can investor-paid credit rating agencies improve the information quality of issuer-paid rating agencies? J. Financial Econom. 111(2):450–468.CrossrefGoogle Scholar
  • Yonker S (2017) Do managers give hometown labor an edge? Rev. Financial Stud. 30:3581–3604.CrossrefGoogle Scholar
  • Yonker S (2016) Geography and the market for CEOs. Management Sci. 63(3):609–630.LinkGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.