Rotterdam Brown Bag Seminars in Finance

Speaker(s)
Ruishen Zhang (Frankfurt School of Finance & Management, Germany)
Date
Wednesday, 16 May 2018
Location
Rotterdam

I study the effects of language commonality on information production in financial markets. I manually construct a dataset on the prevalent dialects for 2,091 cities (counties) in China. The data structure allows me to identify the effect of language commonality separately from cultural proximity (e.g., sharing the same hometown). I find that language commonality between analysts and CEOs facilitates analysts’ coverage and improves sell-side information production. Trading on recommendations from same-dialect analysts generates 6-8 percent return premiums with a one-year average holding period. The effects of language commonality mainly originate from less intelligible, more exclusive dialects.