Investor-Firm Private Interactions and Informed Trading : Evidence from New York City Taxi Patterns

This study investigates the relationship between institutional investors’ information acquisition through on-site meetings with firms and the informativeness of their trading decisions conditioning on investors’ information processing skills. To identify private interactions, we create and validate a novel measure based on the direct taxi traffic between an institutional investor’s business office and the headquarters of its local investee. This measure allows us to complement prior literature by bringing the unit of analysis to a more granular level to control for investor-specific characteristics that are correlated with investors’ private access. We find institutional investors benefit incrementally from their information acquisition activities through private interactions. Institutional investors’ trades in local stocks are more informed when there is a higher degree of private interactions with firms. Further, consistent with public information leveling the playing field by constraining investors’ returns from private information, results suggest that institutional investors’ returns from private information acquisition mainly concentrate on firms with opaque information environments. Overall, this study suggests that private interactions with public firms reward institutional investors with information that improves their trading decisions