Investor sophistication and asset prices

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We show that geographical variation in the level of investor sophistication influences local asset prices. Investors in less sophisticated regions exhibit stronger trading correlations, and correspondingly, the returns of firms headquartered in less sophisticated areas are more strongly correlated. Furthermore, we show that local economic conditions have a greater ability to predict local stock returns in the U.S. states with less sophisticated retail investors. These asset pricing results are driven by the sophistication of actual local investors, and not by the characteristics of the broader local population.

Original languageEnglish (US)
Pages (from-to)557-579
Number of pages23
JournalReview of Financial Economics
Issue number4
StatePublished - Oct 1 2020


  • investor sophistication
  • local return predictability
  • return comovement
  • state portfolios
  • trading correlation

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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