Informed Local Trading Prior to Earnings Announcements
37 Pages Posted: 31 Aug 2011 Last revised: 22 Aug 2013
Date Written: August 17, 2012
Abstract
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.
Keywords: Location, Information, Earnings, Local, Individual investors
JEL Classification: G10, G11
Suggested Citation: Suggested Citation
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