Fading familiarity: High-speed rail and the decline in retail investors' attention to local firms

Firms tend to attract disproportionately more attention from nearby investors, a phenomenon known as local attention bias. While both cognitive biases and market frictions have been proposed as key drivers of investor attention bias, direct evidence on the role of information acquisition costs, especially for retail investors in emerging markets, remains scarce. We address this gap by exploiting the staggered expansion of China’s high-speed rail (HSR) network as a quasinatural experiment that exogenously reduces geographic information frictions. Using province-level internet search activity as a proxy for retail investor attention, we find that HSR development is negatively associated with the proportion of attention that retail investors direct toward local firms. Robustness checks underscore the central role of information friction in shaping investor attention behavior. Increased intercity connectivity from HSR also boosts tourism, which emerges as a key channel for attenuating local attention bias. The effect is more pronounced for firms with lower information transparency and weaker corporate governance. Furthermore, HSR connections encourage firms to expand into nonlocal subsidiaries, reducing investment “home bias,” and lead to stronger stock return comovement, indicating improved information integration across regions. Our findings highlight how infrastructure development can reshape retail investor behavior and support broader economic integration.