Geographical Accessibility and Portfolio Choice*

Using airline travel flow between two states as a proxy for geographical accessibility, we demonstrate that geographical accessibility affects the portfolio decisions and performance of both retail and institutional investors. Irrespective of physical proximity, both types of investors tilt their portfolios toward firms located in more geographically accessible states. However, only institutional investors are able to exploit geographical accessibility to improve their performance. These effects are stronger when more information is locally available in geographically accessible regions. During the 1995-2014 period, a Long-Short trading strategy that exploits geographical-accessibility-induced informational advantage of institutions yields an annual risk-adjusted abnormal performance of about 4%. Collectively, these findings suggest that economic distance is an important determinant of portfolio choice.