Home Away From Home: Geography of Information and Local Investors
69 Pages Posted: 21 Nov 2010 Last revised: 12 Nov 2013
Date Written: September 11, 2013
We develop a 10K-based measure of spatial variation in the availability of value-relevant information that reflects the multi-dimensional nature of firm location. Spatially distributed information generates location-based information asymmetries that affect institutional portfolio decisions and performance. Institutions overweigh firms with greater local economic exposure and earn superior returns on corresponding trades, even for firms not headquartered locally. These patterns are stronger among harder-to-value stocks. Consistent with local informational advantage, local investor performance increases with the local exposure of individual stock holdings and her portfolio as a whole, and more so when her portfolio is more heavily tilted toward local stocks.
Keywords: Multi-Dimensional Firm Location, Information Asymmetry, Local Informational Advantage
JEL Classification: D82, G11, G12, G20
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