In the presence of local bias and hold more concentrated portfolios. The state portfolio returns are predictable both in the shortrun one quarter ahead and the longrun up to quarters ahead. state portfolios are predictable. Trading strategies that exploit the statelevel predictability earn annual risk adjusted returns of around 68. Specifically, local investors require higher average future returns to hold risky local stocks when local economic conditions worsen and they face stronger borrowing constraints.

This paper shows that returns of Specifically, local investors require higher average future returns to hold risky local stocks when local economic conditions worsen and they face stronger borrowing constraints. In the presence of local bias and hold more concentrated portfolios. The state portfolio returns are predictable both in the shortrun one quarter ahead and the longrun up to quarters ahead.