Local Investor Advantage and the Content and Complexity of News

Abstract

With data on Brazilian companies simultaneously traded in São Paulo and New York, and using large language models, we find local investors’ information advantage increases in response to company-specific, as opposed to regional or global, news, especially for more local firms. Local investors’ edge is greater with certain topics, e.g., financial and, more weakly, governance, or when there is no published news at all, consistent with these investors capitalizing on narrowly disseminated or inside information. The relative advantage to international investors increases (that of local investors decreases) when information exhibits greater narrative diversity (complexity), consistent with their more diverse perspectives.

Keywords: Geographic location, Information asymmetry, Information type, Local and global investors

JEL Classification: G14, G15, G20