Home Bias, Abnormal Return and GDP Growth

We build on the home bias phenomenon and hypothesize that company performance as measured by abnormal return is correlated with the GDP growth rate of the state in which its headquarter is located. We categorized all companies on CRSP database from Wharton Research Data Services (WRDS) by state and region. We find that the abnormal return of companies in a given state tends to correlate with next year GDP growth of that state, which is consistent with the home bias phenomenon in that states tend to be better off when the local firms generate positive alphas.