The Measurement of Proximity Bias

Abstract

This chapter focuses on the development of appropriate proximity bias measures. In international studies, country borders are more or less natural dividing lines when determining the extent to which investors are home biased or foreign biased. It is less evident how to determine to what extent investors are locally biased within a country. Domestic studies use either a distance-based or a non-distance-based, community-oriented definition of geographical-proximity bias. In this chapter, we review the commonly adopted proximity bias measures in the literature and propose ways to further develop these measures.