The Geography of Information Acquisition
63 Pages Posted: 24 Apr 2019 Last revised: 20 Mar 2021
Date Written: November 12, 2019
Using detailed data about company visits by Chinese mutual funds, we provide direct evidence of mutual fund information acquisition activities and the consequent informational advantages mutual funds establish in local firms. Mutual funds are more likely to visit local and nearby firms, though ease of travel between fund and firm locations alleviates geographic distance constraints. Company visits by mutual funds are related to both fund trading activities and fund trading performance. The relation between company visits and fund trading performance is particularly strong in newly initiated stock positions. Consistent with this result, we find evidence of intensive information acquisition by mutual funds in stocks not in their current portfolios. Our results suggest that mutual fund local preference in portfolio choice is at least partially driven by geographic constraints of information acquisition and the ensuing information asymmetry.
Keywords: mutual funds, information acquisition, local bias, portfolio choice
JEL Classification: G11, G23
Suggested Citation: Suggested Citation