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\u27s headquarters predict the stock\u27s 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\u27 information advantage comes at the expense of nonlocal traders