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Information and Geography: Evidence from the German Stock Market

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  • Hau, Harald

Abstract

The electronic trading system Xetra of the German Security Exchange provides a unique data source on the equity trades of 451 large traders located in 23 different cities and 8 European countries. We explore informational asymmetries across the trader population: Traders located outside Germany in non-German speaking cities show lower proprietary trading profits. Their underperformance is not only statistically significant, it is also of economically significant magnitude and occurs for large blue chip stocks. We also examine if a trader location in Frankfurt as the financial center or local proximity of the trader to the corporate headquarter of the traded stock or affiliation with a large financial institution results in superior trading performance. The data provides no evidence for a 'financial center advantage'. But the data show decreasing 'institutional scale economies' and an information advantage due to corporate headquarter proximity for high frequency (intra-day) trading.

Suggested Citation

  • Hau, Harald, 1999. "Information and Geography: Evidence from the German Stock Market," CEPR Discussion Papers 2297, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2297
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    References listed on IDEAS

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    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
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    4. Brennan, Michael J & Cao, H Henry, 1997. " International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-1880, December.
    5. Hasabrouck, Joel & Sofianos, George, 1993. " The Trades of Market Makers: An Empirical Analysis of NYSE Specialists," Journal of Finance, American Finance Association, vol. 48(5), pages 1565-1593, December.
    6. Gehrig, Thomas, 1998. "Cities and the Geography of Financial Centres," CEPR Discussion Papers 1894, C.E.P.R. Discussion Papers.
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    8. Shukla, Ravi K. & van Inwegen, Gregory B., 1995. "Do locals perform better than foreigners?: An analysis of UK and US mutual fund managers," Journal of Economics and Business, Elsevier, vol. 47(3), pages 241-254, August.
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    Citations

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    Cited by:

    1. Grammig, Joachim & Schiereck, Dirk & Theissen, Erik, 2001. "Knowing me, knowing you: : Trader anonymity and informed trading in parallel markets," Journal of Financial Markets, Elsevier, vol. 4(4), pages 385-412, October.
    2. Herrmann, Heinz, 2001. "The German financial system and European monetary union," Journal of Asian Economics, Elsevier, vol. 12(1), pages 37-46.
    3. Danthine, Jean-Pierre & Giavazzi, Francesco & von Thadden, Ernst-Ludwig, 2000. "European Financial Markets After EMU: A First Assessment," CEPR Discussion Papers 2413, C.E.P.R. Discussion Papers.
    4. Rosati, Simonetta & Secola, Stefania, 2006. "Explaining cross-border large-value payment flows: Evidence from TARGET and EURO1 data," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1753-1782, June.
    5. Matthieu Bussiere & Georgios Chortareas & Rebecca Driver, 2003. "Current Accounts, Net Foreign Assets and the Implications of Cyclical Factors," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 269-286, Spring.
    6. Grammig, Joachim & Wellner, Marc, 2002. "Modeling the interdependence of volatility and inter-transaction duration processes," Journal of Econometrics, Elsevier, vol. 106(2), pages 369-400, February.
    7. Rosati, Simonetta & Secola, Stefania, 2005. "Explaining cross-border large-value payment flows: evidence from TARGET and EURO 1 data," Working Paper Series 443, European Central Bank.

    More about this item

    Keywords

    Geography; Home Bias; Trading Profits;

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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