The Press and Local Information Advantage

Abstract

Combining a proprietary dataset of individual investor brokerage accounts with a hand-collected 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. We ask whether local investors have an informational advantage created by access to local press, their anticipation of newspaper articles (local or national) or their reaction to such news. 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. Finally, we find that the reaction of local investors to regional newspapers is significantly stronger among investors in more literate cities.