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Correlated Trading and Location




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    • McKinsey & Co. and University of California, Berkeley, respectively. We thank Ken Froot, Rick Green, Terry Hendershott, Narasimhan Jegadeesh, Terry Odean, Robin Greenwood, Andrei Shleifer, Jeremy Stein, and an anonymous referee for helpful comments. Also, we are grateful to seminar participants at the AEA 2003 Meetings, University of Alberta, Arizona State University, H.E.C Paris, Texas Finance Festival, University of California, Berkeley, and the Utah Winter Finance Conference. Thuy-Uyen Dam provided some excellent research support. Any mistakes are ours alone.


This paper analyzes the trading behavior of stock market investors. Purchases and sales are highly correlated when we divide investors geographically. Investors who live near a firm's headquarters react in a similar manner to releases of public information. We are able to make this identification by exploiting a unique feature of individual brokerage accounts in the People's Republic of China. The data allow us to pinpoint an investor's location at the time he or she places a trade. Our results are consistent with a simple, rational expectations model of heterogeneously informed investors.