Expanding Horizons: The Effect of Information Access on Geographically Biased Investing
54 Pages Posted: 1 Mar 2018 Last revised: 5 Feb 2019
Date Written: January 17, 2019
Using investor internet access, we show that increased information access leads to decreased geographic bias in investment portfolios. With internet access improving information access, investors must choose whether to specialize or diversify their information sets, subsequently increasing or decreasing their geographic bias, respectively. We find that countries with better internet access exhibit a lower bias, potentially through a greater demand for online financial information. At the individual level, investors are more likely to invest in both international assets and more distant stocks within the U.S after starting to trade online. This effect is closely related to information availability. The evidence supports internet access reducing geographic bias through increased investor awareness, as these new holdings only provide diversification benefits. There is, however, some evidence of increased learning capacity as online investors earn superior returns for stocks that report financial information online.
Keywords: Information Asymmetry, Home Bias, Internet
JEL Classification: F21, F65, G11, O33
Suggested Citation: Suggested Citation