Does Public Information Acquisition Level the Playing Field or Widen the Gap? An Analysis of Local and Non-Local Investors

While prior studies have speculated that local investors have an information advantage as a result of private information, I examine whether local investors generate an information advantage through their use of public information. Using novel data on professional investors’ requests for financial information from the SEC, I document that investors acquire more financial information for their local investments, and that local investors are more timely at acquiring newly released disclosures. Consistent with public information being more valuable to local investors, I find that investors make more profitable trading decisions in local stocks when they also acquire public financial information. Lastly, I find that investors’ preference to over-weight local stocks in their investment portfolio (“Local Bias”) is increasing in the amount of public information acquired. These results suggest that the use of public information may widen the information gap between local and non-local investors rather than level the playing field.Doctor of Philosoph