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Informed Local Trading Prior to Earnings Announcements

37 Pages Posted: 31 Aug 2011 Last revised: 22 Aug 2013

Keith Jacks Gamble

Middle Tennessee State University

Thomas Berry

DePaul University – Kellstadt Graduate School of Business

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

Gamble, Keith Jacks and Berry, Thomas, Informed Local Trading Prior to Earnings Announcements (August 17, 2012). Midwest Finance Association 2012 Annual Meetings Paper; Journal of Financial Markets, Vol. 16, No. 3, 2013. Available at SSRN: https://ssrn.com/abstract=1919884 or http://dx.doi.org/10.2139/ssrn.1919884

Keith Jacks Gamble (Contact Author)

Middle Tennessee State University ( email )

MTSU Box 27
Murfreesboro, TN 37129
United States

Thomas Berry

DePaul University – Kellstadt Graduate School of Business ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

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