The Geography of Investor Attention
Center for Financial Studies Working Paper No. 671, 2021
50 Pages Posted:
Date Written: November 21, 2021
Retail investors pay over twice as much attention to local companies than non-local ones, based on Google searches. News volume and volatility amplify this attention gap. Attention appears causally related to perceived proximity: first, acquisition by a nonlocal company is associated with less attention by locals, and more by nonlocals close to the acquirer; second, COVID-19 travel restrictions correlate with a drop in relative attention to nonlocal companies, especially in locations with fewer fights after the outbreak. Finally, local attention predicts volatility, bid-ask spreads and nonlocal attention, not viceversa. These findings are consistent with local investors having an information-processing advantage.
Keywords: attention, retail investors, local investors, distance, news, liquidity, volatility
JEL Classification: D83, G11, G12, G14, G50, L86, R32
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