Review of Finance· 2026Q1
Local Returns and Beliefs about the Stock Market
- 2citations
- Q1SCImago
- 2026year
Short summary
Investors extrapolate from recent stock returns of locally headquartered firms when forming beliefs about aggregate stock market outcomes, regardless of the informativeness of local returns.
AI-generated from the title and abstract; the full text is not read.
Key points
- Investors extrapolate from local firm stock returns to form beliefs about aggregate market outcomes.
- This extrapolation occurs irrespective of the actual informativeness of local returns for aggregate predictions.
- Retail investors' own holdings of local firms drive this belief extrapolation.
- Findings suggest geography systematically influences beliefs about public signals and contributes to local biases in equity markets.
AI-generated from the title and abstract; the full text is not read.
Abstract
Abstract We show that investors extrapolate from recent stock returns of locally headquartered firms when forming beliefs about aggregate stock market outcomes. While it may be optimal to rely on local information, these effects are unrelated to how informative local returns are on predictions of aggregate outcomes. Evidence from a sample of retail investors suggests this belief extrapolation is driven by investors’ own holdings of local firms. Our findings suggest that beliefs about information contained in public signals vary systematically with geography, and are an important component of local biases in equity markets.
The authors' abstract, as published at the source. Review of Finance, 2026 · DOI ↗
Continue with a free account
Ask the paper: 3 free questions a day about this paper; save it, get its citation, new summaries every day for your field. Takeaways are Premium.
Continue free on the webSign in with Google or Apple; no card needed. You come back to this paper.
On your phone:
Field: Finance
FinanceEconomics, Econometrics and Finance