Expanding Horizons: The Effect of Information Access on Geographically Biased Investing

56 Pages Posted: 1 Mar 2018 Last revised: 21 Aug 2020

See all articles by Logan P. Emery

Logan P. Emery

Rotterdam School of Management, Erasmus University

Huseyin Gulen

Mitchell E. Daniels, Jr School of Business, Purdue University; Purdue University - Krannert School of Management

Date Written: July 24, 2020

Abstract

Using investor internet access, we show that increased information access leads to decreased geographic bias in retail investor portfolios, although this ultimately harms the portfolio performance. With internet access improving information access, investors must choose whether to focus their attention on local or distant stocks, subsequently increasing or decreasing their geographic bias, respectively. We find that investors are more likely to invest in more distant stocks after starting to trade online. This is especially true for investors from rural areas and the southern region of the U.S. However, online investors are less likely to invest in new industries, increase their trend-chasing behavior, and appear to lose their advantage in local holdings, resulting in decreased Sharpe ratios despite the diversification benefits. The evidence is most consistent with distant stocks grabbing the attention of online investors and distracting them from their competitive advantage. Our findings demonstrate that while information access provides benefits for investors, it can also exacerbate behavioral biases, which places additional responsibility on investors to carefully manage how they use their access.

Keywords: Information Sets, Investor Awareness, Home Bias, Internet

JEL Classification: F21, F65, G11, O33

Suggested Citation

Emery, Logan and Gulen, Huseyin, Expanding Horizons: The Effect of Information Access on Geographically Biased Investing (July 24, 2020). Available at SSRN: https://ssrn.com/abstract=3127023 or http://dx.doi.org/10.2139/ssrn.3127023

Logan Emery

Rotterdam School of Management, Erasmus University ( email )

RSM Erasmus University
PO Box 1738
Rotterdam, 3062 PA
Netherlands

Huseyin Gulen (Contact Author)

Mitchell E. Daniels, Jr School of Business, Purdue University ( email )

403 Mitch Daniels Blvd.
West Lafayette, IN 47907
United States

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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