The Trading Volume Impact of Local Bias: Evidence from a Natural Experiment*

Jacobs, Heiko; Weber, Martin

doi:10.1093/rof/rfr022

Cited by 49 publications

(27 citation statements)

References 63 publications

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“…They confirmed a positive volume-search association, which indicated that the GSVI was associated with a 9% increase in the trading volume. Other research including Bank et al (2011), Drake et al (2012, Jacobs and Weber (2012) and Zhang et al (2013) used the GSVI to predict revenue surprises, earnings surprise, earnings announcements, returns, trading activity, investor distractions, Chinese stock markets, etc.…”

Section: Research Backgroundmentioning

confidence: 99%

How does Google search affect trader positions and crude oil prices?

Wang

et al. 2015

Economic Modelling

120

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Section: Research Backgroundmentioning

confidence: 99%

How does Google search affect trader positions and crude oil prices?

Wang

et al. 2015

Economic Modelling

120

View full text Add to dashboard Cite

“…Using local weather disturbances, Loughran and Schultz [] find that firms headquartered in blizzard‐struck cities experience dramatic drops in trading volume. Jacobs and Weber [] exploit regional holidays in Germany and find significant declines in turnover for firms headquartered in holiday regions.…”

Section: Background and Hypothesis Developmentmentioning

confidence: 99%

Mobile Communication and Local Information Flow: Evidence from Distracted Driving Laws

Brown

Stice

White

2015

J of Accounting Research

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We examine the influence of mobile communication on local information flow and local investor activity using the enforcement of state-wide distracted driving restrictions, which are exogenous events that constrain mobile communication while driving. By restricting mobile communication across a potentially sizable set of local individuals, these restrictions could inhibit local information flow and in turn, the market activity of stocks headquartered in enforcement states. We first document a decline in Google search activity for local stocks when restrictions take effect, suggesting that constraints on mobile communication significantly affect individuals' information search activity. We further find significant declines in local trading volume when restrictions are enforced. This drop in liquidity is 1) attenuated when laws provide substitutive means of mobile communication and 2) magnified when locals have long car commutes and when their daily commutes overlap with regular exchange hours. Moreover, trading volume suffers the most for local stocks with lower institutional ownership, less analyst coverage, and more intangible information. Additional analyses show lower intraday volume during local commute times when mobile connectivity is constrained. Together, our results suggest that local information and local investors matter in stock markets and that mobile communication is an important mechanism through which these elements operate to affect liquidity and price discovery. This article is protected by copyright. All rights reserved.3 mutual fund managers tend to overweight stocks from their home states and that these stockholdings do not outperform other holdings. 8 Other studies also provide evidence in support of the information-based hypothesis. For instance, Pirinsky and Wang [2006] find evidence of strong return comovement among stocks headquartered in the same geographical This article is protected by copyright. All rights reserved. 12 Recent research has begun to examine the mechanisms through which local information diffuses. Prior studies document that social interaction and word-of-mouth communication among individuals play important roles in the diffusion of local stock information and in individuals' decision to participate in stock markets (Hong, Kubik, and Stein [2004], Ivković and Weisbenner [2007], Shive [2010]). Local media sources and local equity analysts also serve as conduits for the flow of local stock information. For instance, Engelberg and Parsons [2011] find that local newspaper coverage of earnings announcements stimulates local trading. Using exogenous newspaper strikes in several countries, Peress [2014] finds lower share turnover and higher stock return volatility and dispersion in the country's stock market during strike days. 9 Regarding equity analysts, Malloy [2005] finds that local analysts provide more accurate earnings forecasts and stock recommendations for local firms, while Bae, Stulz, and Tan [2008] find that local domestic analysts make more precise forecasts for ...

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“…Similarly, Shive (2012) finds that the investment decisions of local residents contribute disproportionately to stock liquidity and price discovery, while Hong et al (2008) show that, in the presence of locally biased investors, the valuation of a company domiciled in a given region is negatively related to the density of corporate headquarters in that region. Finally, Loughran and Schultz (2004) and Jacobs and Weber (2012) show that a preference for local equity among investors also has a significant impact on firm-level turnover. Taken together, this evidence implies that local investors have a hand in the valuation of stocks; thus, extending the local bias research to a cross-border setting adds to improve our understanding of the market impact of geography.…”

Section: A Cross-country Perspective On Local Biasmentioning

confidence: 96%