Abstract
This dissertation contains three essays in local information and financial markets. The first essay examines how heterogeneous motives to accumulate wealth affect household asset allocation decisions and asset returns in the United States. I find that households with stronger preferences to accumulate wealth are more likely to participate in the stock market and allocate more wealth to risky assets. They also use financial markets to smooth their idiosyncratic income shocks. In areas where wealth accumulation motives are strong, stock prices are higher, expected returns are lower, and income inequality is reduced. Collectively, these findings suggest that heterogeneity in the propensity to accumulate wealth has economic and social implications.
The second essay investigates the impact of culture on portfolio decisions and asset returns, focusing on the large and growing Hispanic population in the United States. We find that both retail and institutional investors in high Hispanic neighborhoods overweight local, lottery-type, and high-momentum stocks and their trades are more strongly correlated. Systematic Hispanic trading generates excess return comovement among locally headquartered firms. We also find evidence of higher local stock returns, a stronger negative lottery-stock premium, and larger momentum returns in high-Hispanic areas. Collectively, these findings suggest that evolving ethnic demographics affect U.S. capital markets.
The final essay examines whether exogenous and extremely negative events such as terrorist attacks and mass shootings influence the sentiment and forecasts of sell-side equity analysts. We find that analysts who are local to these attacks issue forecasts that are relatively more pessimistic than the consensus forecast. This effect is stronger when the analyst is closer to the event and located in a low-crime region. Impacted analysts are also relatively more pessimistic around the one- and two-year anniversaries of the attacks. Collectively, these findings indicate that exposure to extreme negative events affects the behavior of information intermediaries and the information dissemination process in financial markets.