Has Local Informational Advantage Disappeared?
47 Pages Posted: 30 Apr 2016 Last revised: 13 Oct 2018
Date Written: June 30, 2018
This study examines how changes in the information environment affect the informational advantage of geographically proximate agents. We find that the long-term advantage of local agents disappeared at the turn of the millennium. This is accompanied by the reduction in local bias of institutional investors and equity analysts. However, institutional investors continue to trade local stocks disproportionately more often than nonlocal stocks; moreover, their local trades outperform nonlocal trades in the short term -- even for large and liquid stocks. Our results are consistent with improvements in the information environment shortening the horizon of geographic proximity-based informational advantage.
Keywords: Institutional investors; equity analysts; local bias; informational advantage
JEL Classification: G11, G14, G23
Suggested Citation: Suggested Citation