The trading volume impact of local bias : evidence from a natural experiment

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URL:	https://ub-madoc.bib.uni-mannheim.de/31480
Additional URL:	http://ssrn.com/abstract=1527579
URN:	urn:nbn:de:bsz:180-madoc-314806
Document Type:	Working paper
Year of publication:	2011
The title of a journal, publication series:	Working Paper / Lehrstuhl für Finanzierung, Universität Mannheim
Volume:	176
Place of publication:	Mannheim
Publication language:	English
Institution:	Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber 1993-2017)
MADOC publication series:	Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject:	330 Economics
Classification:	JEL: G12 , G14 ,
Keywords (English):	Local bias , trading activity , investor recognition , investor distraction , holiday effect , natural experiment
Abstract:	Exploiting several regional holidays in Germany as a source of exogenous cross-sectional variation in investor attention, we provide evidence that the well-known local bias at the individual level materially affects stock turnover at the firm level. The German setting offers favorable characteristics for this natural experiment. Stocks of firms located in holiday regions are temporarily strikingly less traded, both in statistical and economic terms, than otherwise very similar stocks in non-holiday regions. This negative turnover shock is robust and survives various tests for cross-sectional differences in information release. It is particularly pronounced in stocks less visible to non-local investors, and for smaller stocks disproportionately driven by retail investors. Our findings contribute to research on local bias, determinants of trading activity and limited attention.