The Geography of Investment: Informed Trading and Asset Prices

Applying a geographic lens to mutual fund performance, this study finds that fund managers earn substantial abnormal returns in nearby investments. These returns are particularly strong among funds that are small and old, focus on few holdings, and operate out of remote areas. Furthermore, we find t...

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Bibliographic Details
Published in:The Journal of political economy 2001-08, Vol.109 (4), p.811-841
Main Authors: Coval, Joshua D., Moskowitz, Tobias J.
Format: Article
Language:English
Subjects:
Abnormal returns
Asset management
Assets
Bias
Economic geography
Economic information
Economic models
Economic theory
Equilibrium
Equity
Financial investments
Financial portfolios
Geography
Institutional investments
Investment
Investment advisors
Investment funds
Investment management companies
Investment strategies
Investors
Mutual funds
Political economy
Portfolio investments
Portfolio management
Prices
Rates of return
Regional stocks
Statistical analysis
Stock exchanges
Stock prices
Stocks
Studies
Trade
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Summary:Applying a geographic lens to mutual fund performance, this study finds that fund managers earn substantial abnormal returns in nearby investments. These returns are particularly strong among funds that are small and old, focus on few holdings, and operate out of remote areas. Furthermore, we find that while the average fund exhibits only a modest bias toward local stocks, certain funds strongly bias their holdings locally and exhibit even greater local performance. Finally, we demonstrate that the extent to which a firm is held by nearby investors is positively related to its future expected return. Our results suggest that investors trade local securities at an informational advantage and point toward a link between such trading and asset prices.
ISSN:0022-3808
1537-534X
DOI:10.1086/322088