Geography and Local (Dis)Advantage: Evidence from Muni Bond Funds

We examine the relationship between the geographic location of mutual fund managers and fund performance using the unique setting of single-state municipal-bond mutual funds. We find that local managers underperform non-local muni-bond fund managers. Furthermore, we document that local muni-bond fund managers perform relatively better in states with more local funds, consistent with knowledge spillovers, business connections and networking effects associated with those areas. Locals also perform relatively better in states with higher levels of political integrity, consistent with less political pressure on local fund managers in these locations. Our results are robust to several sensitivity checks.