Abstract

http://ssrn.com/abstract=214138
 
 

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The Geography Of Investment: Informed Trading And Asset Prices


Joshua D. Coval


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz


University of Chicago - Booth School of Business

August 1999

CRSP Working Paper No. 502

Abstract:     
This paper uses geography to shed light on the role of asymmetric information in asset pricing. Demonstrating that investors possess significant informational advantages in evaluating nearby investments, we find that active mutual fund managers overweight proximate firms in their portfolios and earn substantial abnormal returns in local holdings. These findings are more pronounced among funds which are small, have few holdings, and operate out of remote locations. Aggregating across all funds, we use the fraction of a stock's shares held by local investors as a measure of the information asymmetry in its investor base. We find that a firm's degree of local ownership is positively related to the cross-section of expected returns, even when controlling for other factors known to explain return variation. The results document new evidence of informed trading and establish a link between such trading and asset prices.

Number of Pages in PDF File: 40

JEL Classification: G12

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Date posted: March 15, 2000  

Suggested Citation

Coval, Joshua D. and Moskowitz, Tobias J., The Geography Of Investment: Informed Trading And Asset Prices (August 1999). CRSP Working Paper No. 502. Available at SSRN: http://ssrn.com/abstract=214138 or http://dx.doi.org/10.2139/ssrn.214138

Contact Information

Joshua D. Coval (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tobias J. Moskowitz
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)
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