Game hoarding in Europe: stock-price consequences of local bias?

Local bias within a country and between countries is well established in the empirical literature. However, the underlying reasons are less well established. In a simple supply and demand framework, Hong, Kubik, and Stein (hereafter HKS) [2008. The only game in town: Stock-price consequences of local bias. Journal of Financial Economics 90, no. 1: 2037.] find an only-game-in-town' effect in the USA the stock price in a region decreases in the ratio of aggregate book value of listed firms to the aggregate personal income (RATIO'). 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.