Does the location of stock exchange matter? A within-country analysis

The current study documents an interesting phenomenon that retail investors prefer to invest in stocks listed at the stock exchange that is geographically close to them in China. This pattern is robust when we control for the well-documented local bias within a country. Among companies with similar distances to both stock exchanges and companies headquartered locally, investors still display a strong tendency to invest in locally-listed stocks. Among stocks with similar distances to both stock exchanges, those listed in Shanghai (Shenzhen) co-move more in returns and trading volumes, with the benchmark at the Shanghai (Shenzhen) stock exchange. Such a preference for local exchange seems not to be motivated by information advantage, because investors do not obtain abnormal returns from their trades on stocks listed nearby. Our findings provide additional evidence that non-information-based familiarity bias induces investment and that such investor bias and exchange-level sentiment influence asset price formation.