Mobile communication and local trading activity: Evidence from distracted driving laws

• In Event: Financial Accounting and Reporting IV

Abstract

We examine the influence of mobile communication on stock market activity using the enforcement of distracted driving restrictions, which are exogenous events that constrain the use of mobile communication devices (MCDs) while driving. We focus our analyses on changes in the trading volume and prices of local stocks headquartered in states implementing distracted driving restrictions. By restricting mobile communication across a potentially sizable set of local market participants, we conjecture that distracted driving restrictions could have negative effects on localized information efficiency—the speed and cost at which information flows to local market participants—and, in turn, the trading volume and stock prices of local stocks. We first provide evidence of a decline in Google internet search activity for local stocks in the days immediately following the enforcement of distracted driving restrictions. This result suggests that constraints on MCD use while driving have a significant effect on the information search activity of market participants. Our results further indicate that local stocks experience significant declines in trading volume and returns in the three-day window surrounding the enforcement dates of distracted driving restrictions. We find that these declines are attenuated when distracted driving laws are less prohibitive and when local residents have long single-occupancy car commutes. Together, our results indicate that mobile communication (and the restriction thereof) has an economically significant influence on information flow and price discovery in capital markets.

Authors

• Nerissa C. Brown, Georgia State University

• Joseph Han Stice, University of Florida

• Roger McNeill White, Georgia State University