Investment in a Smaller World: The Implications of Air Travel for Investors and Firms

39 Pages Posted: 15 Mar 2016 Last revised: 15 Sep 2020

See all articles by Zhi Da

Zhi Da

University of Notre Dame - Mendoza College of Business

Umit Gurun

University of Texas at Dallas

Bin Li

University of Houston - Department of Accountancy & Taxation

Mitch Warachka

Chapman University

Date Written: February 11, 2018

Abstract

Coval and Moskowitz (1999) report that proximity influences investment. We extend the measurement of proximity beyond distance and report that air travel reduces local investment bias. This result is confi rmed using the initiation of connecting flights through recently opened air hubs since investment at destinations served by these connecting flights increases after, not before, their initiation. Air travel also broadens the investor base of fi rms and lowers their cost of equity. Overall, air travel improves the diversfi cation of investor portfolios and lowers the cost of equity for firms.

Keywords: Air Travel, Local Bias, Diversification, Cost of Equity

JEL Classification: G11, G34

Suggested Citation

Da, Zhi and Gurun, Umit and Li, Bin and Warachka, Mitch, Investment in a Smaller World: The Implications of Air Travel for Investors and Firms (February 11, 2018). Available at SSRN: https://ssrn.com/abstract=2747700 or http://dx.doi.org/10.2139/ssrn.2747700

Zhi Da

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Umit Gurun

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

HOME PAGE: http://www.umitgurun.com

Bin Li

University of Houston - Department of Accountancy & Taxation ( email )

Bauer College of Business
4800 Calhoun Road
Houston, TX 77204
United States

Mitch Warachka (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

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