Informed Local Trading Prior to Earnings Announcements

Gamble, Keith Jacks; Berry, Thomas

doi:10.2139/ssrn.1919884

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Informed Local Trading Prior to Earnings Announcements

Midwest Finance Association 2012 Annual Meetings Paper

Journal of Financial Markets, Vol. 16, No. 3, 2013

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

See all articles by Keith Jacks Gamble

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: 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