The Causal Effects of Proximity on Investment: Evidence from Flight Introductions
Journal of Financial and Quantitative Analysis, Vol. 55, No. 6, pp 1978-2004, 2020
51 Pages Posted: 2 Nov 2016 Last revised: 6 Jul 2021
Date Written: April 12, 2019
We use direct flight introductions as an exogenous shock to the travel time between mutual funds and firms to estimate the causal effects of proximity on fund investment decisions and performance. We find that a fund invests significantly more in firms that become more proximate following the introduction of direct flights, and that these more proximate investments exhibit superior performance. Our findings are robust to the inclusion of a variety of fixed effects and potential confounders such as firm-level shocks, fund-level shocks, and time trends. Collectively, our results indicate that proximity enhances investors' ability to acquire value-relevant information about firms.
Keywords: Local Bias, Mutual Funds, Portfolio Choice
JEL Classification: G11, G23
Suggested Citation: Suggested Citation