Hispanic Culture, Local Return Chasing, and Momentum Returns

Abstract

We examine the effect of Hispanic culture on portfolio choice decisions and asset returns in the United States. We demonstrate that investors residing in predominantly Hispanic ZIP codes are significantly more likely to chase returns and overweight small, local stocks than the average U.S. investor. Importantly, we find that these results cannot be attributed to unobserved heterogeneity correlated with Hispanic population concentration. We also find evidence that Hispanic investors' preferences affect prices and returns in local asset markets. In particular, momentum in stock returns is more pronounced (nonexistent) among firms headquartered in MSAs with a high (low) proportion of Hispanics. Further, high-Hispanic MSAs experience larger housing booms and subsequent busts than low-Hispanic localities.