Has local informational advantage disappeared?

Abstract

This study examines how changes in the information environment affect the informational advantage of geographically proximate agents. The long-term advantage of local agents disappeared at the turn of the millennium. This is accompanied by the reduction in local bias of institutional investors and equity analysts. However, institutional investors continue to trade local stocks disproportionately more often than non-local stocks; moreover, their local trades outperform non-local trades in the short term—even for large and liquid stocks. Our results are consistent with improvements in the information environment shortening the horizon of proximity-based informational advantage.