Working Paper: CEPR ID: DP16747
Authors: Marco Pagano; Stefano Mengoli; Pierpaolo Pattitoni
Abstract: Local companies attract significantly more attention from investors than nonlocal companies, especially at times of news releases and high volatility. This attention gap widens especially when news is firm-specific rather than aggregate, and in response to idiosyncratic rather than market risk. Attention is causally related to perceived proximity: after a firm is acquired by a nonlocal one, local investors re-allocate attention away from it more than nonlocal investors; conversely, COVID-19 travel restrictions led investors to reallocate attention towards local companies and away from nonlocal ones, especially those harder to reach. Finally, local attention predicts volatility, bid-ask spreads, and nonlocal attention, but not vice versa. Our findings suggest that the geography of attention matters and is shaped by local investors' information-processing advantage, not familiarity bias.
Keywords: attention; retail investors; local investors; distance; news; liquidity; volatility
JEL Codes: D83; G11; G12; G14; G50; L86; R32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| acquisition by a nonlocal company (F23) | decrease in local investor attention (G14) |
| acquisition by a nonlocal company (F23) | increase in nonlocal investor attention (G19) |
| COVID-19 travel restrictions (Z38) | decrease in attention towards nonlocal companies (F23) |
| local attention (R32) | volatility (E32) |
| local attention (R32) | bid-ask spreads (G19) |
| local attention (R32) | increase nonlocal attention (C45) |
| increase in local attention (F69) | increase in attention to local companies (F23) |
| increase in local attention (F69) | increase in attention to local companies in response to volatility (F69) |