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, compared with nonlocal investors, are more likely to reallocate attention away from it; conversely, COVID-19 travel restrictions led investors to reallocate attention toward local companies and away from nonlocal ones, especially those difficult 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.
The author at the Department of Management: Stefano Mengoli