The Effect of Language on Investing: Evidence from Searches in Chinese Versus English

This study examines the language effect on investing behavior in local stock markets for local- and foreign-language investors using Google search records. First, we find that attention to a local language stimulates attention to a foreign language, increases abnormal news coverage, and has better predictability on stock returns. Second, investors who do Google searches in the local language react faster to a news event's shock than those who search in the foreign language. Third, only attention to the local language can reduce the price drift of an earnings surprise. Last, firm-level information asymmetry is a channel for local advantage. Therefore, we suggest that investors who use a stock market's local language have a local advantage when seeking more profitable investment opportunities in that stock market.

01. June 2021

Authors Hui-Ching Chuang Iftekhar Hasan Yin-Siang Huang Chih-Yung Lin

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Professor Iftekhar Hasan, PhD
Professor Iftekhar Hasan, PhD

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