Mutual-fund managers who lack experience or resources tend to beswayed by a home state advantage, according to a new study fromIndiana University's Kelley School of Business.

While it's common for portfolios to show a preference for nearbycompanies, it hasn't been clear whether bias or a greater amount ofinformation drives the predisposition toward investing in familiarcompanies, such as those headquartered in the manager's home state.A forthcoming paper in the Review of Financial Studies,“No Place Like Home: Familiarity in Mutual Fund Manager PortfolioChoice,” is the first to document and quantify this bias amongprofessional investors. The studyby three Kelley School professors examined 42,109 quarterly fundobservations for more than 2,000 funds.

Fund managers overweighted stocks from their home state by 12%compared with stocks from other states, according to the paper,investing an estimated $31 billion per year based on familiarity.The bias increased among fund managers who had less experience,fewer resources or had spent more time in their home state.