The Firm Next Door : Using Satellite Images to Study Local Information Advantage

We use novel satellite data that track the number of cars in the parking lots of 92,668 stores for 71 publicly listed U.S. retailers to study the local information advantage of institutional investors. We establish car counts as a timely measure of the performance of individual stores and find that institutional investors adjust their holdings more in response to the performance of local stores than to that of non-local stores, and these trades are profitable on average. These results suggest that local investors have a particular advantage when acquiring information about nearby operations. However, institutional investors do not appear to adjust for the quality of their local information; they continue to rely on local information even in cases when it is an ex ante poor predictor of firm performance and as a result earn lower returns than they would have had they maintained their prior stock position