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

See all articles by Jesse A. Ellis

Jesse A. Ellis

North Carolina State University

Leonardo Madureira

Case Western Reserve University - Weatherhead School of Management

Shane Underwood

Baylor University

Date Written: April 12, 2019

Abstract

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

Ellis, Jesse A. and Madureira, Leonardo and Underwood, Shane, The Causal Effects of Proximity on Investment: Evidence from Flight Introductions (April 12, 2019). Journal of Financial and Quantitative Analysis, Vol. 55, No. 6, pp 1978-2004, 2020 , Available at SSRN: https://ssrn.com/abstract=2862738 or http://dx.doi.org/10.2139/ssrn.2862738

Jesse A. Ellis (Contact Author)

North Carolina State University ( email )

Poole College of Management
Campus Box 7229
Raleigh, NC 27695
United States
919-515-9670 (Phone)

Leonardo Madureira

Case Western Reserve University - Weatherhead School of Management ( email )

364 PBL Building
Cleveland, OH 44106
United States
216-368-5003 (Phone)

HOME PAGE: http://faculty.weatherhead.case.edu/madureira/

Shane Underwood

Baylor University ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4524 (Phone)

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