Geographic Proximity of Information to Financial Markets and Impact on Stock Prices: Evidence from the Ebola Outbreak

Abstract

Behavioral finance studies reveal that investors\u27 sentiment affects investment decisions and may therefore affect stock pricing. This paper examines whether the geographic proximity of information disseminated by the 2014 Ebola Outbreak combined with intense media coverage affected asset prices in the United States. The results show that the effect is generally negative on the stock prices, also local media coverage strongly affects local trading, and the effect is more pronounced in small and more volatile stocks and in companies belonging to less stable industries. Furthermore, we find that both retail and institutional investors are more sensitive to the intensity of coverage than to the content of information. Additional tests suggest significant return spillover effects from U.S. markets to other markets one day after the determined event date