Investor sophistication and asset prices

George M. Korniotis, Alok Kumar, Jeremy K. Page

Research output: Contribution to journalArticle

Abstract

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)
JournalReview of Financial Economics
DOIs
StateAccepted/In press - Jan 1 2019

Fingerprint

Investor sophistication
Asset prices
Investors
Headquarters
Retail
Economic conditions
Stock returns
Asset pricing
Geographical variation
U.S. States
Sophistication

Keywords

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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Investor sophistication and asset prices. / Korniotis, George M.; Kumar, Alok; Page, Jeremy K.

In: Review of Financial Economics, 01.01.2019.

Research output: Contribution to journalArticle

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