The Geography of Real Property Information and Investment: Firm Location, Asset Location and Institutional Ownership

Abstract

Using a sample of Real Estate Investment Trusts (REITs), we show that institutional investors exploit location-based information asymmetries by overweighting firms headquartered locally and those with greater economic interests in the investor's home metropolitan statistical area (MSA). This asset allocation strategy is associated with superior portfolio performance. In a difference-in-difference-in-differences analysis of investor headquarters relocations, we find that investors tend to increase their ownership of REITs that have property holdings in the market to which the investor relocates. Our findings highlight the importance of understanding the relation between information advantages and the geography of firm's operations, as well as the implications on ownership patterns and portfolio construction.