Abstract

http://ssrn.com/abstract=1527579
 
 

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The Trading Volume Impact of Local Bias: Evidence from a Natural Experiment


Heiko Jacobs


University of Mannheim - Department of Business Administration and Finance, Especially Banking

Martin Weber


University of Mannheim - Department of Banking and Finance

June 1, 2011

Review of Finance, 16, 867-901.

Abstract:     
Exploiting several regional holidays in Germany as a source of exogenous cross-sectional variation in investor attention, we provide evidence that the well-known local bias at the individual level materially affects stock turnover at the firm level. The German setting offers favorable characteristics for this natural experiment. Stocks of firms located in holiday regions are temporarily strikingly less traded, both in statistical and economic terms, than otherwise very similar stocks in non-holiday regions. This negative turnover shock is robust and survives various tests for cross-sectional differences in information release. It is particularly pronounced in stocks less visible to non-local investors, and for smaller stocks disproportionately driven by retail investors. Our findings contribute to research on local bias, determinants of trading activity and limited attention.

Number of Pages in PDF File: 49

Keywords: Local bias, trading activity, investor recognition, investor distraction, holiday effect, natural experiment

JEL Classification: G12, G14

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Date posted: December 27, 2009 ; Last revised: June 11, 2013

Suggested Citation

Jacobs, Heiko and Weber, Martin, The Trading Volume Impact of Local Bias: Evidence from a Natural Experiment (June 1, 2011). Review of Finance, 16, 867-901. . Available at SSRN: http://ssrn.com/abstract=1527579

Contact Information

Heiko Jacobs (Contact Author)
University of Mannheim - Department of Business Administration and Finance, Especially Banking ( email )
Mannheim, 68131
Germany
+49-(0)621-181-3453 (Phone)
+49-(0)621-181-1534 (Fax)
Martin Weber
University of Mannheim - Department of Banking and Finance ( email )
D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)
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