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Jonas Hjort, Ph.D.

Columbia University, New York, USA

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Authors: Jonas Hjort, Changcheng Song, and Christopher Yenkey

Abstract: We study ethnic investing, using transaction level data from Kenya's stock exchange (NSE) and CEO/board turnover. We first show that a given investor invests more in a given firm when the firm is run by coethnics, and earns lower risk-adjusted returns on such investments. Theory predicts that, other things equal, neglect of a subset of investment objects---such as the taste- or psychology-driven ethnic investing we uncover---will lower aggregate value creation. We find that compensating supply-side responses and arbitrage are limited. Our estimates imply that Kenya's publicly listed firms could have been worth considerably more if investors ignored management's ethnicity.
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