Informed Local Trading Prior to Earnings Announcements
Keith Jacks Gamble
DePaul University - Department of Finance
DePaul University – Kellstadt Graduate School of Business
August 17, 2012
Midwest Finance Association 2012 Annual Meetings Paper
Journal of Financial Markets, Vol. 16, No. 3, 2013
Do individual investors have better information about local stocks? Our results demonstrate that they do. Large trading imbalances by investors living close to a firm’s headquarters predict the stock’s earnings announcement return. Stocks with the most net buying by local investors average significantly higher market-adjusted announcement returns than stocks with the most net selling by local investors. This return difference is pronounced for small- and medium-sized firms, but absent among large firms, which have significant analyst coverage. Local investors' informational advantage comes at the expense of nonlocal traders.
Number of Pages in PDF File: 37
Keywords: Location, Information, Earnings, Local, Individual investors
JEL Classification: G10, G11
Date posted: August 31, 2011 ; Last revised: August 22, 2013
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