The Impact of Broker Geography on Retail Investor Behavior

Abstract

We examine the effects of broker geography, i.e., the location of a brokerage’s financial advisor workforce, on the geography of retail trading in the stocks that the broker’s analysts cover. We find that retail investors are significantly more likely to trade and own stocks that are covered by brokers who employ financial advisors that work in the investors’ metropolitan area. Buying and selling volume are both elevated regardless of whether the broker’s analysts are issuing optimistic or pessimistic research, suggesting that our findings are driven by the effects of equity research on investor awareness rather than investor credulity.

Keywords: Broker geography, financial advisors, analyst recommendations, retail investor behavior

JEL Classification: G24, G50