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
Date Written: February 11, 2018
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 confirmed 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 firms and lowers their cost of equity. Overall, air travel improves the diversfication 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: Suggested Citation