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The Geography of Investor Attention

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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-19travel 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.

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  • Stefano Mengoli & Marco Pagano & Pierpaolo Pattitoni, 2021. "The Geography of Investor Attention," CSEF Working Papers 630, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 27 Mar 2024.
    • Handle: RePEc:sef:csefwp:630
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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G50 - Financial Economics - - Household Finance - - - General
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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