Know thy neighbor: Political uncertainty and the informational advantage of local institutional investors

Tom Aabo; Suin Lee; Christos Pantzalis; Jung Chul Park

doi:10.1016/j.jbankfin.2020.105762

Know thy neighbor: Political uncertainty and the informational advantage of local institutional investors

Tom Aabo
, Suin Lee
, Christos Pantzalis^*
, Jung Chul Park

^*Corresponding author for this work

Department of Economics and Business Economics

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

7 Citations (Scopus)

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Abstract

Previous literature finds a positive association between short-term changes in institutional holdings (especially those of local institutions) and subsequent short-term stock performance. We contribute by investigating the importance of geographical proximity under policy uncertainty. We show that the short-term informational advantage of local institutions only thrives in areas that are either politically closely aligned with the president or where the state government (governorship and legislature) is under the control of one party. Our findings are important in understanding the avenues through which geographical proximity may provide the basis for exploitable informational advantages.

Original language	English
Article number	105762
Journal	Journal of Banking and Finance
Volume	113
Number of pages	22
ISSN	0378-4266
DOIs	https://doi.org/10.1016/j.jbankfin.2020.105762
Publication status	Published - 2020

Keywords

Institutional investors
Local bias
Political uncertainty
Retail investors
Segmented markets

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10.1016/j.jbankfin.2020.105762

AaboLeePantzalisPark_JBF_2020_AMAccepted manuscript, 835 KBLicence: CC BY-NC-ND

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abstract = "Previous literature finds a positive association between short-term changes in institutional holdings (especially those of local institutions) and subsequent short-term stock performance. We contribute by investigating the importance of geographical proximity under policy uncertainty. We show that the short-term informational advantage of local institutions only thrives in areas that are either politically closely aligned with the president or where the state government (governorship and legislature) is under the control of one party. Our findings are important in understanding the avenues through which geographical proximity may provide the basis for exploitable informational advantages.",

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AU - Aabo, Tom

AU - Lee, Suin

AU - Pantzalis, Christos

AU - Park, Jung Chul

PY - 2020

Y1 - 2020

N2 - Previous literature finds a positive association between short-term changes in institutional holdings (especially those of local institutions) and subsequent short-term stock performance. We contribute by investigating the importance of geographical proximity under policy uncertainty. We show that the short-term informational advantage of local institutions only thrives in areas that are either politically closely aligned with the president or where the state government (governorship and legislature) is under the control of one party. Our findings are important in understanding the avenues through which geographical proximity may provide the basis for exploitable informational advantages.

AB - Previous literature finds a positive association between short-term changes in institutional holdings (especially those of local institutions) and subsequent short-term stock performance. We contribute by investigating the importance of geographical proximity under policy uncertainty. We show that the short-term informational advantage of local institutions only thrives in areas that are either politically closely aligned with the president or where the state government (governorship and legislature) is under the control of one party. Our findings are important in understanding the avenues through which geographical proximity may provide the basis for exploitable informational advantages.

KW - Institutional investors

KW - Local bias

KW - Political uncertainty

KW - Retail investors

KW - Segmented markets

UR - https://www.scopus.com/pages/publications/85078949711

U2 - 10.1016/j.jbankfin.2020.105762

DO - 10.1016/j.jbankfin.2020.105762

M3 - Journal article

AN - SCOPUS:85078949711

SN - 0378-4266

VL - 113

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

M1 - 105762

ER -

Know thy neighbor: Political uncertainty and the informational advantage of local institutional investors

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Keywords

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