Informed Local Trading Prior to Earnings Announcements
Do individual investors have better information about local stocks? Our results demonstrate that they do. Large trading imbalances by investors living close to a firm's headquarters predict the stock's earnings announcement return. Stocks with the most net buying by local investors average significantly higher market-adjusted announcement returns than stocks with the most net selling by local investors. This return difference is pronounced for small and medium-sized firms, but absent among large firms, which have significant analyst coverage. Local investors' information advantage comes at the expense of nonlocal traders.
Berry, Thomas and Gamble, Keith, "Informed Local Trading Prior to Earnings Announcements" (2013). Publications – Dreihaus College of Business. 39.