The Speed of Communication

Utilizing cross-industry stock-financed acquisitions as plausibly exogenous shocks to one’s portfolio, we explore the speed at which investors communicate with one another. Our empirical strategy rests on a simple premise: Once endowed with some shares of the acquiring firm, target investors start paying attention to and gathering information about the acquirer industry. Further, target investors communicate their interests and opinions to other investors residing in the neighbourhood, as geographic proximity facilitates the exchange of ideas via word-of-mouth. We show that in the year after the acquisition completes, both target investors and their neighbors significantly increase their trading activity in the acquirer industry. Our main finding is that the speed of communication among investors varies substantially with social characteristics, including age, income, and gender.