The Press and Local Information Advantage
Social Science Research Network
Combining a proprietary dataset of individual investor brokerage accounts with a handcollected newspaper article dataset, we compare the use and anticipation of press information by local investors, those who live near a firm's headquarters, with non-local investors. Prior work has shown that investors tend to hold a disproportionately high level of local firm shares, and that local investors tend to perform well with these holdings. We ask whether local investors have an informational
... created by access to local press, their anticipation of newspaper articles (local or national) or their reaction to such news. While we focus on individual investors, this study is relevant for understanding the potential informational advantages of local institutional investors and local sell-side analysts as well. Our results show that local investors react significantly more strongly than non-local investors to local news, i.e. articles published in local or regional newspapers, even when restricting to investors who already hold the stock and are thus likely to be paying attention to firm-specific news. Non-local investors react more strongly to national newspaper articles than local investors; however the non-local investors earn on average negative returns on these trades. In essence, investors tend to react most strongly to the newspapers they are likely to subscribe to, resulting in more positive returns for local investors. We also examine anticipation of news and find no significant difference between local and non-local investors' trading. This result is inconsistent with prior literature's claim that local investor advantages are due to information leakage. The findings in this research contribute independently to both the large literature on local biases in investing and to the growing literature on the role of the press as an information intermediary. Further, by combining these two literatures this study provides an opportunity to reflect on how each of the individual literatures are related to the broader flow of financial information in the markets.