Correlated Trading and Location

  • Author(s): LEI FENG, MARK S. SEASHOLES
  • Published: Nov 27, 2005
  • Pages: 2117-2144
  • DOI: 10.1111/j.1540-6261.2004.00694.x

ABSTRACT

This paper analyzes the trading behavior of stock market investors. Purchases and sales are highly correlated when we divide investors geographically. Investors who live near a firm's headquarters react in a similar manner to releases of public information. We are able to make this identification by exploiting a unique feature of individual brokerage accounts in the People's Republic of China. The data allow us to pinpoint an investor's location at the time he or she places a trade. Our results are consistent with a simple, rational expectations model of heterogeneously informed investors.

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