Abstract
Prior studies in finance have examined the comovement of stock returns of firms headquartered in the same location. One interpretation of the results is that local investors have a ‘local bias’ due to an information advantage on local firms. We propose that localised agglomeration economies affect the fundamentals of local firms, resulting in the local comovement of stock returns. Using data for China A-share listed firms from 1997 to 2007, we find evidence of the comovement of stock returns of Chinese firms headquartered in the same city. We find inconsistent evidence for the local bias theory. The comovement of the stock returns of firms headquartered in the same city is stronger when the agglomeration economies in the city are stronger, suggesting that localised agglomeration economies provide an alternative explanation of the comovement of stock returns.
Original language | English |
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Pages (from-to) | 1142-1161 |
Number of pages | 20 |
Journal | Urban Studies: An International Journal of Research in Urban Studies |
Volume | 54 |
Issue number | 5 |
Early online date | 2 Mar 2016 |
DOIs | |
Publication status | Published - 2017 |
Bibliographical note
Publisher Copyright:© Urban Studies Journal Limited 2015.
Funding
Michael Firth acknowledges financial support from the Government of the HKSAR (GRF340412). Liwei Shan acknowledges financial support from Ministry of Education of the People’s Republic of China (14XJC790007) and from the Fundamental Research Funds for the Central Universities supported by the South western University of Finance and Economics (JBK141107).
Keywords
- Agglomeration economies
- Firm value
- Headquarters
- Local bias
- Stock returns